Digitalisation seen as key to bolstering fight against illicit gold trade

The integrity of the global gold supply chain has been the subject of intense scrutiny of late, following a damning report by Swiss nongovernmental organisation SwissAid earlier this year, which claims that illicit gold trade amounts to between $23-billion and $35-billion a year.

However, the introduction of technologies such as the geoforensic passport, optical AI and blockchain – along with the updated Responsible Gold Guidelines (RGG), the more stringent Know Your Customer (KYC) Guidelines and the Organisation for Economic Cooperation and Development’s (OECD’s) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas – means that much of the framework needed to stymie illicit gold trade already exists.

Further, international gold industry association the World Gold Council (WGC) aims to increase the scope and effectiveness of this framework through initiatives such as the Gold Bar Integrity (GBI) platform, which forms part of its broader Gold247 vision.

Gold247 is meant to enhance supply chain management, while simplifying gold trading processes and increasing access for all stakeholders, including central banks, bullion centres, subsistence gold miners, smaller refineries and potential investors, explains WGC CEO David Tait.

He says that the ultimate goal is a “truly global network where anyone who sits outside the database should be very worried, as the very thought of procuring gold from outside of the system would be unthinkable”.

The realisation of such a network is nearly in sight, although both Tait and Argor-Heraeus co-CEO Robin Kolvenbach agree that general fragmentation, both from a regulatory and technological perspective, leaves room for improvement.

The GBI, AI and Blockchain

An integral part of the Gold247 vision is the GBI platform, which encourages the adoption of technology to enhance transparency and traceability throughout the entire supply chain.

The GBI pilot – which was jointly launched by the London Bullion Market Association (LBMA) and the WGC and ran from March to July 2022 – helped define the scope of the platform’s database. It also revealed longer-term goals, such as expanding the platform to include other gold products, secondary market materials and other precious metals, in addition to incorporating KYC requirements and other due diligence processes when on-boarding customers.

More than 30 participants took part in the pilot, including Rand Refinery and Argor Heraeus.

“We see the GBI as a crucial step forward in preventing ingress of illicit material into the LBMA gold ecosystem,” says Rand Refinery CEO Praveen Baijnath.

Argor-Heraeus co-CEO Hans Deutsch agrees, expanding on his company’s involvement in the GBI by citing its work with Swiss software company aXedras and US-based software company Alitheon – both of which are recognised by the LBMA.

He notes that the company uses aXedras’ Bullion Integrity Ledger, which helps to create “immutable provenance information”, while Alitheon’s software allows it to verify and trace its physical products.

“If you put these puzzle pieces together with geoforensic data analysis, you get strong systems that can ensure that no illegal gold is entering that supply chain,” adds Deutsch.

To illustrate the benefits of Alitheon’s optical AI solution FeaturePrint, Alitheon CEO Roei Ganzarski compares it to a human fingerprint.

“Fingerprints are unique; they are inherent and they are persistent,” he says, explaining that rather than using proxies, “like barcodes, stamps, tags, markers or tokens” – which can be removed, or faked or stolen to pass off counterfeit goods as the genuine article – FeaturePrint essentially creates a “digital fingerprint” based on the attributes and features that are inherently unique on each product owing to the manufacturing tolerances of that specific product.

Even gold bars produced by the same machinery in the same refinery, using the same moulds, have unique, inherent characteristics that are undetectable by the human eye, making them distinct from all others, “just like human identical twins still have slightly different fingerprints”.

While the bars are made to specific tolerances – in terms of weight, size and gold content – the individual products can fall anywhere within the manufacturing tolerance band.

FeaturePrint combines machine vision and patented algorithms to codify these inherent attributes to create a unique digital identity that can be used to “irrefutably identify, authenticate, and trace” a bar of gold or any other physical item. Any company or individual with the software can use a standard off-the-shelf digital camera or a mobile phone to identify, authenticate and trace an item.

Deutsch also cites the geoforensic analysis, which is a system that enables refineries to determine the origin of the gold dore it receives, using X-ray fluorescence and other analyses to determine the material’s elemental composition and matching that to the characteristics of the orebodies of dore providers.

“We work with two geoforensics providers and use our laboratory to conduct the statistical analyses to determine whether the material really fits into the elemental categories within the footprint of the mine . . . that helps us verify whether there has been mixed material added into that melt, if it’s original or recycled gold.”

The LBMA-approved geoforensic passport service providers have a database of all gold dore providers, which they use for their analyses.

“The fact that the dore- and bar-related data is stored in a secure, centralised database managed by the LBMA is a major enhancement. This database – in addition to the blockchain that serves as a comprehensive ledger of all certified gold bars, and coupled with optical AI to provide another means of verification – is a game changer for the industry,” Baijnath summarises.

Further, RGG Version 9 – which Kolvenbach notes “introduced tighter control mechanisms related to fraud and illicit activities” – further bolsters responsible sourcing activities, as it helps to ensure that gold products generated by these refineries are not tainted by illegal or unethical activities.

“Rand Refinery and other LBMA-accredited refineries are committed to internationally accepted responsible sourcing practices laid out by the RGG and OECD Due Diligence Guidance. Further, we apply robust KYC, ‘Know Your Product’, as well as anti-money laundering (AML) and countering the financing of terrorism (CFT) policies and procedures,” says Baijnath.

“In terms of continuous improvement, besides using world-class AML, CFT and sanctions-checking and media monitoring tools that use advanced algorithms, Rand Refinery is also trialling the use of AI in lead identification and customer due diligence.

“We envisage AI to play a key role in changing due diligence by simplifying data collection and analysis, document review, risk identification and escalation and reporting,” he comments.

Tait adds that there are 65 LBMA- accredited gold refineries globally, hence there are many smaller operators that do not necessarily adhere to the RGG or any other guidelines. A key priority will be to get these refineries, through training and other programmes, to the point where they can join, or return to, the LBMA’s Good Delivery List.

Kolvenbach says that better monitoring of refineries and increasing the enforcement of guidelines is also needed.

Standardisation Issue

Tait reiterates that the two areas of concern, in terms of eradicating illicit gold flows, are the informal mining sector and secondary gold markets, primarily because of the lack of regulatory consistency and a lack of buy-in from associated stakeholders.

Many of the concerns regarding secondary market players could be addressed by including them in the broader GBI network, as they would have to comply with the same guidelines and principles on responsible sourcing and KYC processes. Their products could also be tracked, traced and verified using the blockchain ledger and other technologies.

In terms of informal mining, Tait notes that legislation across the various mining jurisdictions differs on defining and facilitating artisanal and subsistence mining. Further, “illegal mining” and related activities are judged very differently, as “what some governments deem an egregious crime, others find permissible”.

It does not help that the laws and standards governing the sale, transport and recycling of gold materials also vary across countries.

However, while criminal organisations with large-scale mining and smuggling operations care little for laws, there are also groups of subsistence and artisanal miners who, while sometimes complicit, are not actively trying to subvert the law.

The general idea seemingly is that, by bringing responsible informal miners into the formal gold network, and through consensus on what does and does not constitute gold-related illegal activity, there would be fewer loopholes, and people, for the wanton criminals to exploit.

Kolvenbach agrees, explaining that, while it is evident that the technology exists to completely avoid any informal gold flows, “we should not forget that we are also facing social issues that cannot be resolved by simply closing our eyes and excluding informal participants”.

Baijnath suggests that refineries should, therefore, assist gold-supplying counterparties or prospective suppliers, including legitimate artisanal and small-scale miners (ASM) and local traders, in improving their supply chain practices.

“In many instances, this involves refineries working with government departments and central banks to ensure that local policies and regulations enable transparency and help screen out illicit flows, all while allowing legitimate ASM participants to continue to earn a living.”

To that end, Tait points to the WGC’s plans and initiatives to formalise ASM, including the London Principles, to which four central banks have already committed, with numerous others, including the Brazilian and South African central banks, expressing interest.

The London Principles help structure and formalise Central Bank-ASM domestic purchase programmes.

“So far, the signatories include the centrals banks of Columbia, Ecuador, Mongolia and the Philippines,” Tait says, reaffirming his belief that if ASM participants are willing to comply with the necessary standards – for example, eliminating the use of mercury, and refraining from the use of forced and child labour – and are offered financial incentives that are equivalent or better than those offered by illegal mining operations, such programmes would go a long way towards reducing illicit flows, without harming legitimate subsistence miners.

He concludes that there is “no point pretending that something’s not happening”, regarding the illicit gold trade, stressing that, while it is not an “overnight fix”, the WGC, its members, partners and affiliates are doing what they can to solve the problem.

By Nadine James

Source: Mining Weekly

Gold is booming - but is now a good time to invest?

The last two years have been kind to investors. 2022 was a brutal readjustment to the end of the cheap money era that lasted from the financial crisis to Covid. But once prices had reset by October that year, the stage was set for a renewed bull market. The FTSE 100 has provided a total return of nearly 25%, including reinvested dividends, and the S&P 500 around double that. Bonds, too, have stabilised in anticipation of a turn in the interest rate cycle; the Bloomberg Global Aggregate index, also a combination of capital and income, has offered diversification and a 3% return over the same period.

But one of the best performing assets over the past two years has been neither an equity index nor fixed income. It has certainly not been oil, which has fallen by nearly 20% since 2022 as demand from China has plunged and investors have anticipated a slowdown in America. Rather, it has been what John Maynard Keynes famously described as ‘a barbarous relic’. Even without the benefit of an income stream (the main driver of total returns from most investments), gold has given investors a 54% profit since September 2022.

Gold is a volatile asset and can require extreme patience at times. If you had bought an ounce of the precious metal in September 2011 at the height of Europe’s sovereign debt crisis, you would have paid around $1800. You would have had to wait until the summer of 2020, when there was still no end in sight to the Covid pandemic, before that investment was, briefly, back above water. Two years ago, you would still have been in negative territory. Gold does nothing for years, and then suddenly it takes off.

If you are prepared to hold for the long term, gold can be a great store of value. But you might need to torture the data to get the answer you need. If you had invested in gold during the final months of the dot.com bubble 25 years ago (not long after Gordon Brown famously sold the UK’s reserves at the bottom of the market), you would have made ten times your money. That’s one and a half times better than the total return from US shares and three times better than what the FTSE 100 has delivered on the same basis. If you had bought 30 years ago, however, gold would have trailed the equity markets on both sides of the Atlantic.

That is the context in which investors should view the current enthusiasm for gold. There is a long list of reasons why gold is rising at the moment, and it may continue to do so, but surges in the gold price are usually followed by long periods of drift.

So why have investors been so keen on gold? First, the obvious - supply and demand. There are some big buyers out there, most obviously central banks looking to diversify their reserves away from the US dollar at a time of economic fragmentation and rising geo-political tensions. Goldman Sachs estimates that reported and unreported central bank purchases have been running at nearly three times the post-2010 average in the last two years. Other sources of higher demand include new industrial uses in electronics and renewable energy. It’s no longer just about investment and jewellery.

As with other commodities, like copper, cranking up supply to meet that higher demand is a slow burn. Mining output has been stable in recent years and with limited new supply hitting the market, the path of least resistance for the gold price is up.

The second tailwind for gold is the interplay between inflation and interest rates. The precious metal finds itself in a sweet spot today between modestly falling but still sticky inflation and easing monetary policy. Gold is viewed as a hedge against inflation and, while price rises are moderating, core inflation remains persistently above central banks’ targets. At the same time, falling interest rates reduce the opportunity cost of holding an asset that pays no income. With interest rates at 5%, you are giving up quite a lot to hold gold in your portfolio. Less so at 3%.

The third reason gold is rising in value is that, for right or wrong, people trust it. President Herbert Hoover said ‘we have gold because we cannot trust government’. John Pierpoint Morgan’s riff on the same theme was ‘gold is money. Everything else is credit.’ Gold has no counterparty risk. The value of shares is tied to the performance of a company; bonds are only as good as the business or government that issues them. Gold is a bitcoin you can put in your pocket. It’s accepted globally, and it’s liquid. You will always find a buyer for your gold when you need one.

The final reason gold is going up is that it is going up. For years on end no-one mentions the precious metal in polite company. Then, like London buses, articles making the case for gold hunt in packs. The problem with buying an asset like gold when momentum is on your side is that when the pendulum swings back the other way there is little of substance to support the price. A share or bond will find a floor when its yield moves too far away from the return available on comparable investments like cash or property. But there’s nothing to say that gold is under-priced at $1,000 an ounce or over-priced at $3,000. The price is just what it is.

So, I’m a sceptical bull. I do have some exposure to gold myself, and I’m glad I have over the past couple of years. But if someone were to ask me today whether they should too, I would struggle to answer them.

By Tom Stevenson

Source: Fidelity International

Gold Monthly: Rally might not be over just yet

Gold joined the global sell-off of equities at the start of week 5 Aug, driven by growing concerns over the risk of recession in the US. Gold, usually a safe haven during such uncertainty, sold off sharply on Monday amid likely liquidations to cover margin calls on other assets.

Gold drops amid rout in stocks

Looking ahead, we believe gold should regain its footing once again, amid the ongoing geopolitical uncertainties and expectations of interest rate cuts from the US Fed.

Despite Monday’s sharp drop, gold is still up about 15% so far this year and is one of this year’s best-performing commodities, aided by central bank buying, Asian consumers and expectations the Fed is getting close to cutting rates. It hit an all-time high in July amid strong appetite from central banks and Asian consumers. We believe, after a consolidation phase, gold will maintain its upward momentum.

US Fed in focus

Gold’s focus continues to be on the scope and timing of the Fed’s likely move to cut rates. Lower borrowing costs are positive for gold as it doesn’t pay interest.

The Fed has held its key policy rate in a target range of 5.25% to 5.5% – the highest level in more than two decades – since last July.

Our US economist now sees a 50bp cut in September followed by a series of 25bp moves that would get us back to a Fed funds rate of around 3.5% by next summer.

China keeps gold buying on hold

Central bank buying continued in June, with 12 tonnes of net buying reported during the month, data from the World Gold Council (WGC) showed. June’s purchases were once again led by emerging market central banks. Uzbekistan and India both added 9 tonnes to their gold reserves during the month.

However, China has seen a slowdown in gold purchases over recent months. The People’s Bank of China didn’t add gold to its reserves for a third consecutive month in July. In May, China’s central bank didn’t add gold to its reserves ending an 18-month buying spree that had driven gold prices to record highs, with high gold prices likely to have deterred further purchases for now. Bullion held by the PBoC was unchanged at 72.8 million troy ounces at the end of last month, according to official data.

Meanwhile, Singapore was the largest seller (-12 tonnes) in June – it reduced its gold reserves in June by the most since at least 2000. Buying strength continues this year, although gross purchases and sales are lower compared to the same period last year. In 2023, central banks added 1,037 tonnes of gold – the second-highest annual purchase in history – following a record high of 1,082 tonnes in 2022.

However, we still expect central bank demand to remain strong looking ahead amid the current economic climate and geopolitical tensions and as prices retreat from record highs.

ETF inflows continue

Following the strongest month since May 2023, global gold ETFs have now seen inflows for two months in a row, according to data from the WGC. In June, notable European and Asian buying offset outflows from North America. Although June and May inflows helped limit global gold ETFs’ year-to-date losses to US$6.7bn (-120t), this remains the worst first half of the year since 2013 – both Europe and North America saw hefty outflows while Asia was the only region with inflows.

Investor holdings in gold ETFs generally rise when gold prices gain, and vice versa. However, gold ETF holdings have been in decline for much of 2024, while spot gold prices have hit new highs. ETF flows finally turned positive in May.

Prices set to peak in the fourth quarter

We believe that geopolitics will remain one of the key factors driving gold prices. The war in Ukraine and the Middle East and tensions between the US and China suggest that safe-haven demand will continue to support gold prices in the short to medium term. The US presidential election in November and the long-awaited US Fed rate cut will also continue to add to gold's upward momentum through to the end of the year, in our view. Central banks are also expected to keep adding to their holdings, which should offer support.

We see gold averaging $2,380 in the third quarter and prices peaking in the fourth quarter at $2,450/oz, resulting in an annual average of $2,301/oz.

By Ewa Manthey

Source: ING

Gold sprints to all-time high

Gold prices jumped more than 1 percent to a record high on Tuesday, as investors flocked to the safe-haven asset after comments from Federal Reserve officials cemented expectations of a US interest rate cut in September.

Spot gold gained 1.6% to $2,460.99 per ounce by 11:32 a.m. ET (1532 GMT), while US gold futures for August delivery rose 1.5% to $2,465.80 per ounce.

“Gold surges to new all-time highs despite stronger-than-expected core retail sales data, encouraged by Powell indicating yesterday that the Fed was growing more confident that inflation was back on its way to target,” said Tai Wong, a New York-based independent metals trader.

“This essentially etches a September cut in stone barring an inflation calamity in the coming weeks.” Fed Chair Jerome Powell on Monday said recent inflation data bolstered policymakers’ confidence that price pressures are on a sustainable path to remain low, reassuring markets that the US rate cut is on the cards in September.

San Francisco Fed Bank President Mary Daly also said “confidence is growing” that inflation is heading toward the US central bank’s 2% goal.

Lower US interest rates put pressure on the dollar and bond yields, which increases the appeal of non-yielding bullion. Gold prices have risen more than 19% so far this year, after a 13% rise in 2023.

“Thanks largely to weakness in economic data, and falling inflationary pressures, bond yields are continuing to remain under pressure,” said Fawad Razaqzada, market analyst at City Index.

“This is helping to boost the appeal of low- and zero-yielding assets, and thereby keeping the gold outlook positive.” Gold’s rise came despite a stronger dollar, with the US unit up 0.2% against its rivals, after a reading of retail sales proved to be firmer than expected.

Among other metals, spot silver rose 0.9% to $31.29 per ounce, platinum gained 0.2% to $997.13 and palladium climbed 0.7% to $957.

By Reuters

Source: Brecorder

Gold is overvalued says RBC

RBC Capital Markets analysts said they maintain a cautious stance on gold, considering it overvalued after reaching record highs last month.

“We think that gold is overvalued from the perspective of a number of key macro drivers and that there are some unrealized vulnerabilities to the pillars of gold’s rally,” analysts said in a note.

“While we are cautious, it’s more because we do not think gold should be at such high levels just yet,” they added.

RBC also notes that while May and June saw more stable trends for gold-backed exchange-traded products (ETPs), it remains unconvinced that investors are fully committed. Investors have sold gold holdings during the price rally, and a sustained return to buying has not yet been observed.

Strong demand from global central banks has been a crucial driver of gold’s recent rally. However, RBC analysts believe that China's recent pause in gold purchasing reveals potential vulnerabilities.

“To be clear, we still think that central bank demand will continue to be strong, but there are reasons to be cautious on the volume at record prices and after such a sustained period of strength,” they wrote.

Some market participants still expect more than one rate cut this year, using economic data releases as reasons to invest in gold. Yet, analysts prefer to stay on the sidelines in the short term, anticipating better opportunities as market vulnerabilities become apparent.

They also emphasize that the foundational elements of the rally, such as central bank demand, physical demand, and Chinese demand, are not without risks.

The analysts point to China's pause in purchasing after an 18-month buying streak as an example of these vulnerabilities.

While not bearish on outright central bank demand in 2024, they maintain a cautious outlook given the record prices and substantial purchases to date.

The World Gold Council's central bank survey indicated that while 68% of central banks expect their gold reserves to remain unchanged over the next 12 months, 81% believe total holdings will increase.

By RBC Capital Markets

Source: Investing.com

Gold Price Forecast – Gold Continues to Look Strong

The gold market rallied again in the early hours of Friday, as it looks like we are doing everything we can to breakout above the crucial level above.

Gold Markets Technical Analysis

You can see that the gold market rallied early during the trading session on Friday, as it looks like we are going to threaten the $2,400 level again. This is an area that has had significant resistance previously. So, if we can break above there, that would obviously be a huge victory at that point in time.

Gold, almost certainly, will try to look at the $2,500 level. On the other hand, if we see the market pullback from here, we could see plenty of support areas, especially all the way down to the $2,300 level. The 50 day EMA comes into that picture, and I think that solidifies at $2,300 level as support in general. At this point, the question isn’t so much as to whether or not gold is strong or whether or not it’s in a bullish market.

It’s just a question now as to when will we breakout to the upside with the geopolitical concerns around the world, it does make a certain amount of sense that gold and tends to rise. And then of course, you have the interest rate situation which is all over the place. Yes, rates are high, but at the same time, Wall Street continues to have this fantasy that the Federal Reserve is going to come and cut rates aggressively.

Perhaps more importantly, both of those central banks are out there buying masses of gold, so that obviously puts a little bit of a bid under the market as well. In general, this market continues to see a lot of noise, but I do think that it’s positive overall.

By Christopher Lewis

Source: Fxempire

Speculative froth departing gold as China tightens trading conditions

Arguably the physical buying interest from central banks as well as Chinese retail purchases underpinning this market could count as some of the highest quality in that neither is likely to return to the market irrespective of the price action.

The same cannot be said of the more recent speculative flows, which by their nature, are arguably agnostic to the asset itself … it's a pure exercise in making money. Long or short … gold or soda ash futures … who cares. Like 12 year olds high on e-numbers, the futures market can be a riot of activity, rife with rumour and everyone keen to jump on the latest fad. 

If you marked the 'new gold paradigm' to 1st March 2024 before the yellow metal went near vertical … and showed little regard for neither financial market indicators nor geopolitics … then arguably the gold floor is comfortably set at around $2060. That said, physical buyers who missed the rally will likely jump in as the market retraces, setting a much higher floor. The charts offer some guidance – with the 100 dma at $2250 and this will likely be the first port of call … will it hold ? … that depends upon the level of long liquidation coming out of China, because that seems to be the driving force just now. 

So China has tightened trading conditions as a safeguard in a gold market that it clearly deems to be too hot. 

On April 8th, the Shanghai Gold Exchange (SGE) advised gold margin requirements would be tightened from 10% to 12%, and the daily price limit would be adjusted from 9% to 11%. On April 12th, further adjustments were made. Starting from the close of clearing on April 15th, the margin requirement for gold contracts was increased from CNY 45,000 per lot to CNY 51,000 per lot. Similar adjustments were made to silver after it hit “limit up” on April 8th.

More importantly, on April 10th, the Shanghai Futures Exchange (SHFE or Shiffy) similarly announced the reduction of trading limits for gold futures, with a maximum number of contracts for intraday gold trading set at 2,800 lots. On April 16th, the SHFE further adjusted the daily price limit for gold and silver futures to 8%, while increasing the hedging trading margin requirement to 9% and the speculative trading margin requirement to 10%.

These changes provide significant speed bumps on the motorway that is gold trading. It is a passion-killer. It follows that Chinese speculators would look elsewhere.

Gold saw the largest price decline yesterday in 14 months followed by a further significant decline today with large volumes being traded in Shiffy. 

There is a sense that the speculative froth is leaving the market and as it declines, gold will re-engage with its core physical buyers who have been left behind. If you want to know where that floor is then the charts will give you a view – and if not, Indian bargain-hunting is normally a great bell-wether. In short, this is a healthy correction for gold. 

Rumours that the Chinese government would be building significant stockpiles of nickel sent prices up by a massive 6.5% on Shiffy, just as gold cratered … a coincidence ? I think not. 

Meanwhile domestic Chinese gold ETF buying, normally the preserve of a footnote, has accelerated with 28.5 tonnes of gold buying in the last 4 weeks. So as speculators depart stage left, it appears that 'quality' gold investment is re-entering stage right. So grounds for encouragement.

By Ross Norman

Source: Metals Daily

Asia gold: Dealers grapple as sky-high rates erode demand in key hubs

Physical gold demand in Asia dwindled on the back of sky-high prices as consumers abstained from making fresh purchases, forcing dealers to offer deep discounts last seen a year earlier in India and lower premiums in China this week.

“Gold is behaving in a characteristically price elastic way which is to say consumers are responding to elevated prices by scaling back purchases rather than chasing the market higher,” said Ross Norman, an independent analyst based in London.

In top consumer China, gold premiums slipped to $15-$25 per ounce over benchmark prices, from $20-$36 a week earlier. Premiums were at their lowest levels since July this week, as per Reuters records.

Bernard Sin, regional director of Greater China at MKS PAMP, however, said there is still investor interest in gold as a safe haven due to concerns about the country’s uneven economic recovery.

“Despite this, the People’s Bank of China is likely to maintain its current policy of issuing conditional import quotas unless the RMB exchange rate exhibits excessive volatility.”

In India, the world’s second-largest gold consumer, domestic prices rose to a record 66,356 rupees per 10 grams on March 8.

Asia gold: India premiums hit 4-month highs, jewellers stock up for weddings

“Jewellery stores are tumbleweeds these days. People think prices won’t stay this high forever,” said Harshad Ajmera, a gold wholesaler in Kolkata.

Indian dealers offered discounts of about $36 an ounce over official domestic prices - inclusive of 15% import and 3% sales levies, the highest since March 2023 - versus last week’s $30 discount.

Since retail buyers are exchanging old jewellery for new, jewellers have ample scrap supplies and do not need to buy from banks, said a Mumbai-based bullion dealer with a private bank.

In Singapore, bullion was sold at anywhere between at par to $2.25 premiums, while dealers charged premiums of between $1-$2.5 in Hong Kong.

There is more selling than buying, because most consumers are taking profit as prices are near all-time highs, said Brian Lan at Singapore dealer GoldSilver Central.

In Japan, dealers sold gold at par to $0.5 premiums.

By Reuters

Source: Brecorder

Gold at $3,000 and oil at $100 by 2025? Citi analysts don’t rule it out

There’s an off chance that gold prices could soar to $3,000 per ounce, and oil to $100 per barrel within the next 12 to 18 months, according to Citi.

Central bank aggressive purchases, stagflation, and a global recession are catalysts that could drive the price of the yellow metal almost 50% higher, Citi analyst said.

Gold prices could soar to $3,000 per ounce, and oil to $100 per barrel within the next 12 to 18 months subject to any one of three possible catalysts, according to Citi.

Gold, which is currently trading at $2,016, could surge by about 50%, if central banks sharply ramp up purchases of the yellow metal, a possible stagflation, or in case of a deep global recession, Aakash Doshi, Citi’s North America head of commodities research, told CNBC.

Central bank’s gold rush

“The most likely wildcard path to $3,000/oz gold is a rapid acceleration of an existing but slow-moving trend: de-dollarization across Emerging Markets central banks that in turn leads to a crisis of confidence in the U.S. dollar,” Citi analysts including Doshi wrote in a recent note.

That could double central bank’s gold purchases, challenging jewelry consumption as the largest driver of gold demand, Doshi elaborated. 

Central banks’ gold purchases have “accelerated to record levels” in recent years, as they seek to diversify reserves and reduce credit risk, Citi said. China and Russian central banks are leading gold purchases, with India, Turkey, and Brazil, also increasing bullion buying.

The world’s central banks have sustained two successive years of more than 1,000 tons of net gold purchases, the World Gold Council reported in January.

“If that goes again [to] double very quickly to 2,000 tons, we think that would be actually very bullish for gold,” Doshi told CNBC via phone.

A global recession?

Another trigger that could drive gold to $3,000 would be a “deep global recession” that could spur the U.S. Federal Reserves to cut rates rapidly.

“That means the brakes have been cut, not to 3%, but to 1% or lower - that will take us to $3,000,” Doshi said, noting that this is a low probability scenario.

Gold prices tend to share an inverse relationship with interest rates. As interest rates dip, gold becomes more appealing compared to fixed-income assets such as bonds, which would yield weaker returns in a low interest rate environment. 

The Fed benchmark interest rate has been between 5.25% and 5.5% since July 2023, the highest since January 2001 when it shot to 6% following the dot-com bubble burst. Markets expect the Fed to cut rates in May or June.

Stagflation — an increasing inflation rate, a slowing economic growth and rising unemployment — could be another trigger, though Doshi said there’s a “very low probability” of such a scenario.

Gold is perceived as a safe haven and tends to perform well in periods of economic uncertainty when investors move away from the riskier assets such as equities.

These three potential triggers aside, Citi maintains that their base case for bullion is $2,150 in the second half of 2024, and the price of gold to average a little over $2,000 in the first half. A new record could be reached towards the end of 2024, Doshi added.

Oil at $100?

Another wildcard scenario highlighted in Citi’s report was for oil prices to hit triple digits again.

The catalysts for oil to hit $100 per barrel include higher geopolitical risks, deeper OPEC+ cuts and supply disruptions from key oil producing regions, Doshi said. 

The ongoing Israel-Hamas war has not hit oil production or exports, with the only significant impact being the Houthi attacks from Yemen on oil tankers and other ships traversing the Red Sea.

Major oil producer Iraq has been impacted by the conflict and any further escalation could hurt other major OPEC+ suppliers in the region, Citi said.

Recent developments show that tensions have been rising on the border between Israel and Lebanon, raising fears that the war in Gaza could spread elsewhere in the Middle East.

Doshi said Iraq, Iran, Libya, Nigeria and Venezuela are vulnerable to supply disruptions, with steeper U.S. sanctions policy on Iran and Venezuela potentially on the cards. 

Other geopolitical risks such as Russian oil supplies, should Ukraine attack Russian refineries with drones, cannot be ruled out, Citi’s analysts wrote. Doshi maintained that their base case for oil stands at around $75 per barrel for the year.

Global benchmark Brent’s April futures were trading at $83.56 a barrel, while the U.S. West Texas Intermediate March futures stood at $79.13 per barrel.

By Lee Ying Shan

Source: CNBC

Fed rate cuts and the gold price forecast for 202

Key takeaways:

*Gold prices touched an all-time high of $2,135.39/oz in December 2023, driven largely by a weak U.S. dollar and expectations the Fed will begin lowering rates.

*Fed interest rate cuts and falling U.S. real yields will once again become the key drivers behind gold prices in 2024.

*Gold prices are expected to dip in the near term before climbing to new highs later in the year, with a forecasted peak of $2,300/oz in 2025.

Gold prices surged in the last few months of 2023 after a powerful rally was sparked by central bank purchasing and mounting investor concern over the Israel–Hamas and Russia–Ukraine conflicts. A falling U.S. dollar and expectations of Federal Reserve (Fed) rate cuts further boosted bullion prices, which hit a record high of $2,135.39/oz in December.

After a hiking cycle that pushed the Fed funds rate to its highest in more than 22 years, policymakers on the Federal Open Market Committee (FOMC) have indicated at least three rate cuts in 2024, as inflation eases from the 40-year highs seen in mid-2022. With gold prices hovering around $2,000/oz, is another bullish run expected for the precious metal as rates begin to fall?

“Commodities are unlikely to benefit from core inflation in 2024. Inflation should fall to under 3%, so that, along with properly timing the business cycle, are the two conditions needed to initiate long positions, making the outlook for the sector very tactical in 2024,” said Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan. “Across commodities, for the second consecutive year, the only structural bullish call we hold is for gold and silver.”

Economic and geopolitical uncertainty tend to be positive drivers for gold, which is widely seen as a safe-haven asset due to its ability to remain a reliable store of value. It has low correlation with other asset classes, so can act as insurance during falling markets and times of geopolitical stress. A weaker U.S. dollar and lower U.S. interest rates also increase the appeal of non-yielding bullion.

Anticipation has played a key role in sparking the rally in gold’s price, as it is influenced by market expectations of future Fed policy.

“Across all metals, we have the highest conviction on a bullish medium-term forecast for both gold and silver over the course of 2024 and into the first half of 2025, though timing an entry will continue to be critical,” said Gregory Shearer, Head of Base and Precious Metals Strategy at J.P. Morgan.

“At the moment, gold still appears quite rich relative to underlying rates and foreign exchange (FX) fundamentals, and still looks vulnerable to another modest retreat in the near-term, as Fed rate cut expectations are now running earlier than our forecasts,” Shearer added.

But any retracement in the coming months could provide investors with an opportunity to begin positioning for a breakout rally commencing around mid-2024, as U.S. GDP growth slows and expectations of an imminent Fed cutting cycle rise.

Will gold prices hit another all-time high?

Gold prices will peak at $2,300/oz in 2025, according to J.P. Morgan Research estimates. This prediction assumes a Fed cutting cycle initially delivering 125 basis points (bp) of cuts over the second half of 2024, pushing gold prices to new nominal highs.

Gold price predictions are based on Fed official forecasts, which see core inflation moderating to 2.4% in 2024 and 2.2% in 2025, before returning to the 2% target in 2026.

By the second quarter of 2024, J.P. Morgan economists forecast U.S. growth will slow to 0.5% quarter-on-quarter. This should prompt the Fed to start cutting rates in June, ultimately delivering 125 bp of cuts in the latter half of the year to avoid a recession. 

Based on this underlying economic outlook, U.S. 10-year nominal yields are forecasted to fall 30 bp from a 3.95% forecast at the end of the first quarter, targeting 3.65% by the end of 2024. This would pull U.S. 10-year real yields lower by the same magnitude, from 1.75% to 1.45% over the same time frame.

“We think over this period, the Fed cutting cycle and falling U.S. real yields will once again become the mono-driver behind gold’s breakout rally later in 2024. Gold’s inverse relationship to real yields has historically been weaker over Fed hiking cycles, before strengthening again as yields fall over a transition into a cutting cycle,” Shearer said.

This should ultimately drive gold prices to new nominal highs in the second half of 2024 (averaging $2,175/oz in the fourth quarter) and even higher in 2025 (quarterly average peak of $2,300/oz in the third quarter).

“The Fed cutting cycle and falling U.S. real yields will once again become the mono-driver behind gold’s breakout rally later in 2024.”

Gregory Shearer

Head of Base and Precious Metals Strategy, J.P. Morgan

Central bank buying and ETF flows to support gold demand in 2024 

In addition to imminent rate cuts and rising geopolitical tensions, central banks were a major driver of gold prices in 2023 and will likely continue to be so in 2024.

Led by China, central banks have purchased more than a net 800 tonnes of gold in the first three quarters of 2023. J.P. Morgan Research estimates global central bank purchases for the year will hit 950 tonnes, with China remaining a significant steady buyer. This will exceed the amount purchased over the same period in 2022, which resulted in record demand.

“There is still scope for boosted reserves at some central banks as institutions look to diversify reserve assets, so purchasing is likely to remain structurally elevated compared with the late 2010s,” Shearer noted.

Gold as a percentage of total reserve holding across select central banks 

Along with central bank interest, increased investor appetite in the physical gold market should also be a major flow contributor to any 2024 gold rally. As of the end of 2023, managed money in net long positions — where more investors expect the price of gold to rise rather than fall — only screened at around 6/10 on a standardized scale, with 10 being the net longest positioning since 2018.

This means there is still a lot of capacity for investors, through the purchase of gold either on an exchange or via an exchange-traded fund (ETF), to increase their long positions.

Total ETF holdings in gold have fallen steadily since mid-2022, so a re-lengthening of investor positioning (exchange and ETF) triggered by the onset of a cutting cycle is expected to be positive for bullion and supportive of a rally in prices in the second half of 2024.

“As rates eventually come down, we would expect recent ETF outflows to reverse with a return to retail-led ETF inflows boosting gold investor demand too, strengthening a move higher in prices,” Shearer said. “Continued robust central bank purchases, along with boosted physical demand on price dips will likely remain a significant support to prices over the final twists and turns of the Fed cycle.”

By J.P. Morgan

Source: J.P. Morgan

First $14M cross-border e-CNY gold purchase completed in Shanghai

The transaction was facilitated by the Shanghai Financial Exchange International Board.

The first-ever cross-border settlement for precious metals using the digital yuan central bank digital currency (CBDC), also known as the e-CNY, was recorded on Dec. 20.

According to local news reports, the Bank of China’s Shanghai branch successfully transferred a 100 million yuan ($14 million) e-CNY CBDC settlement received overseas for gold via the Shanghai Financial Exchange International Board. 

“The account will contribute financial strength to support Shanghai’s in-depth implementation of the free trade pilot zone promotion strategy and promote the quality and upgrading of the international trade center,” a spokesperson for the Bank of China wrote. 

Bank of China Shanghai is currently one of the lead supporters of digital yuan pilot testing and recently facilitated the import of iron ore to China via the CBDC. The firm also partners with foreign institutions, such as France’s BNP Paribas, to develop the digital yuan.

Chinese President Xi Jinping officially praised, for better or for worse, the importance of CBDCs in cross-border trade during an address to the July 2023 Shanghai Cooperation Organisation Summit. Since then, various foreign banks have joined China’s ongoing CBDC trials, while Singapore announced that it would allow Chinese tourists to spend digital yuan inside the island country during their trips. On Dec. 1, China signed a $400 million memorandum on CBDC cooperation with the United Arab Emirates. 

On Dec. 19, the latest update for the official digital yuan app was released. The version allows users to create a digital yuan wallet using their phone number, disable their wallet in case their phone is lost, and reset their password and private keys. Users can also bind their personal bank accounts and debit cards to purchase digital yuan in-wallet.

By Zhiyuan Sun

Source: Cointelegraph