Gold News

Gold Price Gains as Fed 'Hawks' Hit Western ETFs But China's Demand Jumps

GOLD PRICES rebounded to show a $10 gain for this week so far on Wednesday, shrugging off a raft of 'hawkish' comments on US interest rates from senior Federal Reserve officials as new data showed bullion demand surging in No.1 central-bank and private-sector buyer China while gold-backed ETF products traded in the West continue to shrink.
Gold priced in the US Dollar touched $2044 per Troy ounce, reversing the week's earlier drop following hawkish comments from Fed chair Jerome Powell, after the People's Bank of China, No.1 among the world's central-bank gold buyers so far this decade, said it added another 10 tonnes of bullion to its reserves in January.
The 15th consecutive month of reported growth, that took its reported gold holdings – widely thought to understate the true figure – up to 2,245 tonnes, equal to more than 7 months of global gold-mine output.
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Gross gold demand in China's private sector meantime hit a 9-year high above 271 tonnes last month, withdrawals data from the Shanghai Gold Exchange suggested on Tuesday.
In contrast to those SGE flows, gold investment ETF trust funds – over 99% of whose value as a group trades on Western economy stock markets – have now shrunk in all but 3 of the last 21 months as a group, new data from the mining industry's World Gold Council said today, needing another 1.5% less in bullion backing last month.
That gold ETF outflow equated to more than 5 days of global gold mine output, adding 51 tonnes to market supply last month with year-on-year outflows reaching 268 tonnes as the correlation between gold prices and ETFs snaps.
Chart of global gold ETF backing in tonnes. Source: BullionVault via World Gold Council
Already shrunk by 1/3rd from its Covid Crisis peak of September 2020, giant gold-backed ETF the SPDR Gold Trust (NYSEArca: GLD) yesterday shrank by another 4 tonnes, down 0.5% with its heaviest 1-day liquidation in almost 4 weeks.
Only 1 of the 25 analysts entering this year's LBMA gold price forecast competition mentions Chinese private-sector demand as a factor in their prediction, with German refiner Heraeus' precious metals trader Alexander Zumpfe saying that "India's robust economic outlook could boost jewellery demand, countering weaker demand in the West and in China."
Entrants instead name US interest rates, global central-bank buying, geopolitics and the risk of banking crisis as the biggest drivers of 2024 gold prices.
Betting on March's Federal Reserve decision now sees only a 1-in-5 chance that the Fed will make its first US rate cut next month, down from a 90% certainty at the turn of the year.
With May becoming a 2-in-3 shot according to interest-rate futures tracked by derivatives exchange the CME's FedWatch tool, the cost of borrowing overnight Dollars will then end 2024 at 4.16% per annum, market consensus says.
That's almost half-a-point higher from the forecast given by the futures market in mid-January.
The Fed itself projected an end-2024 rate of 4.6% in its 'dot plot' forecasts just before Christmas.
Despite the worsening fears over commercial real estate debt hitting US banking stocks, more data is needed to confirm inflation has retreated before the Fed can cut rates said 
non-voting 2024 member Austan Goolsbee, president of the Chicago Fed, yesterday, a point repeated by non-voting Minneapolis Fed president Neel Kashkari in separate remarks.
"It would be a mistake to move rates down too soon or too quickly," agreed non-voting Fed member, Bank of Cleveland president, Loretta Mester in a speech Tuesday, also striking a hawkish note.
But voting member Atlanta Fed president Raphael Bostic says the central bank has refined its definition of 'maximum employment' to means a jobless rate of 4.1% rather than 4.5% previously, while Patrick Harker of the Philadelphia Fed – not a voting member until 2026 – says the US central bank appears to have achieved a "soft landing" with growth continuing while inflation recedes.
"Now, with inflation moving closer to our goal, we need to balance the risks to achieving both sides of our dual mandate [of maximum employment and 2% inflation] when determining the appropriate stance of policy."
Today brings another 4 speeches from Fed presidents and governors, plus 1 on Thursday and Friday again.
Back in the bullion market, No.1 silver-backed ETF the SLV yesterday saw its first inflow in 2 weeks, expanding by 1.1% as the bullion price slipped close to late-January's 2-month lows.
Silver in London today reversed a 20-cent overnight drop, trading back at $22.43 per Troy ounce.
That still left the Gold/Silver Ratio above 91, close to 17-month highs and a level seen as signalling "macro economic fear" if not crisis according to one bullion-market strategist.
With the stock price of New York Community Bank (NYSE: NYCB) sinking again, "US commercial real estate contagion is now moving to Europe," says a headline at Bloomberg.
"European commercial real estate: the cracks are starting to show," said a headline at the Financial Times in April last year.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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