This week's political drama was just the ticket to elevate the Gold market as uncertainty feeds the safe-haven products. The market may consolidate at this level next week with a larger range. The week will be packed full of data and Fed speakers with engagements to add a bit of volatility to the marketplace. Around $1240.00 to $1280.00 may be the consolidation zone. The current administration remains under fire which may impede the ability to implement all the growth plans promised. In Europe, the French vote for the candidate supporting the Euro FX and keeping the country on the same course helps stabilize things somewhat, but the global outlook is fraught with uncertainty.
The Gold market may be paused from extending too much higher as the June 13th - 14th FOMC is straight ahead. Once the meeting is out of the way, the Gold market may be able to extend higher and follow-thru in a seasonal tendency to rise towards December. The inflation target of 2% and full employment are within our sights. Inflation may be overshot which may be just the recipe for a Gold uptrend. As of the end of the first quarter, Gold-backed ETF's were around 2.277.5 tons. North American holdings increased 25.4 tons. The SPDR Gold Shares rose 21.0 tons to 853.4 tons. iShares Gold Trust increased by 4.5 tons to 204.4 tons according to the World Gold Council. US Gold exports as of January thru February increased to 101 metric tons. Hong Kong, China and India received 61.8 tons of the total. According to the World Gold Council, India's demand for Gold jewelry was up 16 % in the first quarter. India and China imported 98.3 metric tons in April. Projections are that China may purchase 1,000 metric tons in 2017. The global environment lends itself to uncertainty which is the fuel for the Gold. The rate hike is the one pause that may suppress the Gold from moving substantially.
According to the World Gold Council there are factors to support the Gold demand in 2017!
- Heightened political and geopolitical risks
- Currency depreciation
- Rising inflation expectations
- Inflated stock market valuations
- Long-term Asian growth
- Opening of new markets
The World Gold Council reminds us that 90 % of the physical demand for Gold comes from outside the US. The People's Bank of China reported reserves as of this January at 1842.6 tons. They also report Gold holdings for the fourth straight month at 59.24 million ounces. China's net Gold imports in March were up to 111.6 tons. Gold demand for 2016 was 4,309 tons according to the World Gold Council. The inflows into the Gold ETF's for 2016 accounted for 536 tons again according to the World Gold Council. At the end of February, ETF Gold holdings totaled a 2,246.1 tons up 90.6 tons from January. North America added about 44.1 tons while Europe added about 43.4 tons according to the World Gold Council. Asia had outflows of about 0.3 tons to 68.8 tons. Russia has conveyed a desire to transact Gold business with the BRICS nations.
Russia has been buying Gold and according to the Russian Central Bank may have 1,614.27 tons accumulated at this point. Asian economies may gain in wealth and they are notorious for purchasing Gold. It is projected that Asia may account for about 60% of the global growth in 2017. They have introduced their Gold Accumulation Plans at the Shanghai Gold Exchange thus encouraging holdings by consumers according to the World Gold Council. Japan has also increased their Gold holdings in recent years. Should the US Dollar become less of a premier currency since the Chinese have gained the Special Drawing Rights with the International Monetary Fund, then the US currency may be questioned where it is currently the preferred world currency. That is where Gold comes in! The People's Bank of China had gotten approval for their Special Drawing Rights (SDRs) from the World Bank allowing them to issue bonds drawn in Chinese Renminbe (RMB). As of October 1st, they include the Yuan. They have been known to buy Gold in recent years to accumulate backing for this event that they have waited for. The Chinese backed ETF's for Gold increased to $1 billion in US Dollars from $215 million again in the first half of this year. The thing about China is that they like to buy low, thus we see the pauses in the uptrends at specific levels where they may take profits. The dips are where they prefer to buy. The International Monetary Fund's special drawing rights is a feather in the cap for the Chinese currency. China as of June of 2015 had 1,658 tons worth possibly around $70.5 billion. They also keep their mining interest on a separate ledger thus holding more than reported. The Shanghai Exchange has had a sharp uptick in activity according to the World Gold Council to 346 tons compared to the normal 100 tons. China's stored Gold as of August 2016 was about 1800 + tons. The Shanghai Exchange (SGE) was selected by the Dubai Gold Exchange for the Shanghai Fixings as opposed to the London Fixings. China purchased 5 metric tons of Gold in September taking the Gold holdings to 1838 tons. Indian imports were up 582 % in March from last years. Their wedding season has begun this month. The UK Royal Mint reported Gold sales up 20 % this first quarter.
Sharia Gold Standard has been approved by the World Gold Council in conjunction with other entities. Expectations for increased Gold sales may propel the Gold products higher. Currently there are few Sharia Law compliant products for Muslim investors. Once the guidelines have been met, the products available may increase thus allowing more allocations in Gold products. The Islamic Finance Stability Board expects growth to be around $6.5 trillion by 2020 with just a 1 % projection toward Gold allocations would be about 1,700 tons of Gold according to the World Gold Council.
German investors added 76.8 tons of Gold thru ETF's, bars and coins according to the World Gold Council. According to the World Gold Council, every central bank reserve manager follows the mantra of: safety, liquidity and return. The financial universal market for Gold is thought by the World Gold Council to equate to approximately $3 trillion US. If the central banks continue to purchase Gold as insurance if you will for their country's reserves, then the investors themselves may continue to seek the Gold as a hedge for their portfolios. The Fed potential hikes and the strong US Dollar may pressure the Gold, but nothing can take away the safe-haven feature of the metal.
The main sentiment pushing the Gold prices is protection as a hedge against inflation. The US has been going thru a low inflationary period that is expected to turn into a high inflationary period with the new leadership. According to former Fed Chair Alan Greenspan, "Gold is not for short-term gain, but for long-term protection". Dr. Greenspan believes that there may be a risk of stagflation globally stemming from stagnant economic growth paired with rising inflation according to his commentary in a report from the World Gold Council.
(QST 5/19/2017 6:15 PM CST)
The safe-haven properties of the Gold are perfect for those times of uncertainty and/or conflict in the world or a time of easing! The Gold (December) contract is in a bullish mode if it stays above $1232.30. $1262.80 may be the comfort level or point of control. The range may be $1225.00 to possibly $1275.00 for the moment. Currency devaluations and overshot inflation would be the key to a rise in Gold! President Trumps remark on keeping the Chinese, Japanese and US currencies on a level playing field may be potentially supportive of the Gold. The prognosis for the long-term may be more than favorable as the other nations may be steering away from a US Dollar denominated world. We look for a long-term uptrend in the Gold to possibly $1400.00 but the next FOMC meeting may be live for a possible rate hike. The political drama adds fuel to the case for Gold as uncertainty of our Commander in Chief focuses on his ability to deliver those campaign promises of tax cuts and regulation reforms.
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To hear more about the Federal Reserve…
An interview with Neal T. Weintraub of http://www.pairsandspreadtrading.com/
Jerry Nelson, formerly of The Federal Reserve Bank of Chicago.
Leslie Burton of https://www.danielstrading.com/about-us/futures-brokers/leslie-burton
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