Precious metals are taking a collective dive! What happened to the international gold price falling below 2,000 US dollars?
The gold market is under pressure amid stronger-than-expected overseas economic data.
Yesterday, the international gold price fell below US$2,000 per ounce again, and a weak trend may become the main tone in the future.
International gold prices fell sharply
Yesterday evening, the United States released January CPI data, which disappointed the market.
The latest data released by the U.S. Bureau of Labor Statistics showed that the U.S. CPI increased by 3.1% year-on-year in January. Although it was the lowest level since June last year, it was higher than the expected 2.9%. The U.S. CPI increased by 0.3% month-on-month in January, higher than the expected 0.2%. The Fed is more concerned about core inflation, which excludes food and energy costs. The U.S. core CPI increased by 3.9% year-on-year in January, higher than the expected 3.7%, and did not fall further. Core CPI increased by 0.4% month-on-month in January, the largest increase in eight months, higher than the expected 0.3% and higher than the previous value of 0.3%.
After the CPI data was released, swap contract pricing showed that traders expected the probability of the Fed to cut interest rates in May to shrink significantly, from about 64% before the CPI was released to about 32%; U.S. short-term interest rate futures traders bet that the Fed would not cut interest rates before June. Interest rates will be cut. Affected by this news, the U.S. dollar index rose rapidly, and gold and silver prices plunged across the board.
As of press time, London spot gold closed at around US$1,991 per ounce, falling below the US$2,000 mark again since mid-December last year; COMEX gold futures fell to around US$2,004 per ounce. International silver prices fell even more, falling nearly 3% from February 12.
The overall trend of international precious metals has been relatively weak this year. Gold prices have fallen by more than 3% year-to-date, in sharp contrast to last year’s 13% rise.
Strong domestic demand for gold coins and bars
Industry insiders said that in recent years, domestic stocks and other major assets have performed poorly. Investors are seeking more value preservation and hedging tools due to asset shortages. Gold has become one of the important choices, and gold jewelry, gold coins and gold bars have become the first choice for ordinary people.
Brokerage China reporters recently visited gold sales stores in Shenzhen, Beijing, and Shanghai as consumers, and their intuitive impression was that they were “overcrowded” and “there were so many people.” Although the gold price has reached a maximum of 625 yuan/gram, consumers still buy and buy, and gold jewelry and gold bars priced by gram have become their favorites. Gold sales companies have also “rolled up” marketing and launched various promotional activities.
According to data from the World Gold Council, China’s total domestic gold jewelry demand will still reach 630 tons in 2023, a year-on-year increase of 10%. This is mainly due to the recovery of China’s economy, the increasing appeal of gold to consumers seeking value preservation, and the growing demand for wedding gold jewelry. In the fourth quarter of last year, China’s domestic gold bar and gold coin sales were 83 tons, a year-on-year increase of 35%, and 1% higher than the strongest third quarter sales since 2018. This performance also pushed total gold bar and coin demand to 280 tons in 2023, a year-on-year increase of 28% and 6% higher than the ten-year average. In addition, as of the end of 2023, the total holdings of gold ETFs in the Chinese market reached 61.5 tons, and the total asset management scale reached 29 billion yuan, a record high.
It is currently the Spring Festival holiday. During exchanges back home, reporters from brokerages China discovered that many relatives and friends indeed purchased gold bars and coins for investment last year.
The central bank is still there, buy, buy, buy
The latest data released by the State Administration of Foreign Exchange shows that as of the end of January this year, the People’s Bank of China’s gold reserves reached 2,245.3 tons, an increase of about 9.9 tons from the end of December last year, and an increase for 15 consecutive months.
According to a recent report by the World Gold Council, in 2023, the global central bank’s net gold purchases (purchases minus sales) will be approximately 1,037 tons, second only to the record high in 2022 (approximately 1,082 tons). Among them, the net purchase volume of gold by the Central Bank of China was 225 tons, ranking first among all countries and exceeding 20% of the total new volume of global central banks.
The latest data released by the International Monetary Fund shows that as of the end of December last year, global official gold reserves totaled 35,927.4 tons. Among them, the Eurozone (including the European Central Bank) totaled 10,771.5 tons, accounting for 56.6% of its foreign exchange reserves.
China Merchants Bank Research Institute believes that the central bank’s increase in gold purchases is the main reason for supporting the price of gold. In the medium term (1 to 2 years), the trend of the central bank increasing its gold holdings has taken shape, and there are no signs of reversal. It is expected to continue to be the price of gold. important driving force. In the long term (3 to 10 years), there is a threshold for emerging market central banks to increase their holdings of gold. When the proportion of gold in reserve assets gradually approaches this threshold, the positive impact on gold prices will gradually be blunted. Gold is still in an upward cycle, and London gold may be expected to exceed US$2,300 per ounce in 2024. It is recommended to maintain a medium-to-high allocation.
However, it is worth noting that according to data from the World Gold Council, global physical gold ETFs experienced outflows for the eighth consecutive month, with an outflow of approximately US$2.8 billion in January 2024, equivalent to a decrease in global holdings of 51 tons to 3,175 tons. Overall, North America leads the way in fund outflows, European funds also continue to significantly reduce their holdings, and Asia once again sees gold ETF inflows.
The Goldstone Futures Research Report believes that it is unlikely that the Federal Reserve will cut interest rates in March, casting a shadow over precious metals. Moreover, under the expectation of a soft landing of the U.S. economy, the performance of both U.S. stocks and U.S. bonds shows that pushing up gold at this time is not cost-effective. Geopolitics has not shown a more radical expression and has entered a stalemate stage. The market trend of gold is not strong. After the previous bullish sentiment subsided, the news has little impact on the market.