Continue to show strength the price oforo which in the last few sessions has returned to significantly approach new historical highs. Gold caught up in yesterday’s session intraday a new high for the period at 2,085 dollars an ounce, to then retrace and close trading at 2,055 dollars. Purchases also on silver which has already gained 31% from the low marked in mid-March, +50% from the lows of October.
The reasons behind the gold rally
The precious metals rally is mainly supported by the weakness of the US dollaras well as from the renewed and growing concerns about the “new” banking crisis in the United Stateswhich arose with the recent collapses of PacWest Bancorp e Western Alliance Bancorporation.
“Gold prices went up after that PacWest, a Los Angeles bank already under special surveillance by market operators, declared that it is working to find “strategic options”, that is, it would like to find a buyer for its assets”. This triggered another stock market crash that ended up losing the -86.3% since the beginning of the year.
But not only that, “growing fears about a probable slowdown in the US economy it also further weakened the US dollar, which was already under pressure after the indication of a possible pause in rate hikes by the US Fed,” he commented Anuj GuptaVice President Research presso IIFL Securities.
The price of gold has also jumped since the beginning of March due to the decline in US 10-year Treasury yieldswith the sharp inversion of the yield curve aggravating recession fears in the US, while increasing the attractiveness of safe-haven assets, as is usual in these market environments.
This is clear from the above graph showing the inverse correlation between US 10-year yields and gold, with the latter having jumped by more than 13% since the beginning of March, while the US 10-year yield has fallen by 16%.
JPMorgan favors gold and tech stocks
According to the strategists of JPMorgan it is probable that, while the risks of recession in the US increase, investors will favor gold and technology-related stocks which could be two “relatively attractive” asset classes for a long-term investment.
“The US banking crisis has increased demand for gold as a proxy for lower real rates and as a hedge against a doomsday scenario,” JPMorgan analysts commented.
As far as technology stocks are concerned, indeed JPMorgan analysts, year-to-date have observed a increase in the weight of technology stocks in investor portfolios, which is approaching the highs recorded in 2021. This implies an overweight in technology stocks.
Global demand for gold falls
Meanwhile, the World Gold Council (WGC) said today that, in the first three months of 2023, the Global Gold Demand Drops 13% compared to what was recorded in the same quarter of 2022.
In detail, the total gold demand was 1,081 tonsa reduction mainly driven by the decline in central bank demand for gold which dropped to 228.4 tons in the first quarter, in 40% drop compared to the previous three months.
While demand for gold still remains strong, this is the second consecutive quarter of decline of total gold demanda clear sign that the central banks’ bullion binge may soon be coming to an end.
In fact, we recall that last year’s purchases of gold by central banks reached record levels having accounted for nearly a quarter of global gold demand. This factor has done nothing but support the prices of the yellow metal, all in a context already characterized by the Federal Reserve’s most aggressive tightening cycle in decades.
In this sense, in 2022 the demand for gold reached an 11-year high thanks to record purchases by central banks.
If on the one hand the purchase of gold by central banks is declining, on the contrary they are increased purchases of gold by Chinese investors and consumers, driven by the easing of restrictions due to Covid-19. In detail, the Chinese demand for jewelery was 198 tons, the quarterly maximum since the first quarter of 2015, driven by the post-Covid reopenings.
Demand for gold led by jewels
From today’s report presented by the World Gold Council it emerges that about half of the demand for gold comes from jewelerswith the latter requiring around 508 tons of gold in the first quarter of 2023, down 15% compared to the last quarter of 2022.
Despite the sharp drop in total gold demand, the WGC today said nonetheless”that investment demand for gold is likely to grow further this year, with central bank purchases remaining strong, albeit below last year’s high“.
“However, it is likely that the accumulation of inventories by investors makes gold more expensivewhich could reduce demand in countries like India, where consumers are often put off by high prices,” concludes WGC analyst Krishan Gopaul.
Technical Analysis: Gold Towards New All-Time Highs
Positivity phase for the price of gold which with the last few sessions has returned close to the historic highs marked on the occasion of the pandemic above 2,085 dollars an ounce.
In case of continuation of the purchases, the overcoming of the resistance area at 2,080 with increasing trading volumes could push the precious metal to new historic highs at 2,090 dollars.
Conversely, in the event of a retracement of prices after the recent increases, the most important short-term supports for gold prices remain the support area of 2,000 dollars. Thus, the collapse of this last level of support could bring gold back to the 1,950 dollar an ounce area, prices at the beginning of March.3
