Page 35 - Bullion World Volume 3 Issue 10 October 2023

Bullion World | Volume 3 | Issue 10 | October 2023

surged to +2.20% which has eroded longer” Fed which will keep interest That Gold ‘floors’ have shifted up
Golds appeal and will continue to rates elevated in the developed from $1600/oz in 2H’22, to $1800/
be a net neutral-bearish drag prices world, expect further deleveraging oz in Q1’23 to $1900/oz in 1H’22 as
via Gold (out)flows in the Western from this sector. Still, given a strong a mix of physical and Central Bank
world. That’s evident in Gold ETFs, US$, higher real interest rates and inflows deftly recalibrate higher. It is
which have shed 18mn oz since the general apathy from the West for the physical world, which for a range
Fed began this hiking cycle in March Gold (albeit there has been areas of of reasons, will keep Gold in play
2022; that’s a pace of outflows of growth such as in the retail coin/bar into this late economic cycle and as
over 1mn oz / month and given segment), Gold has held up relatively the world awaits the US recession
the fact that Global ETFs still hold well vs the model-implied Gold rates that is always coming, but just never
~88mn oz in the face of a “higher for given current US real interest rates. arriving…

While Chinas return to the (Gold) development in the Gold market, especially given worsening geopolitics and
market remains lackluster, other a power struggle in a new BRICS+ vs West era. Central Bank Gold has also
physical hubs have managed to pick been a core underpinning for higher price floors and is simply characteristic
up (some) of the slack. Gold prices in of the ongoing deglobalization and rising sanctions risks; that segment will
local currency terms – from Thailand continue to be supportive of prices into 2024 on.
(XAU/THB), India (XAU/INR), Turkey
(XAU/TRY), and China (XAU/CNY)
– all hit record new Gold highs the
past four months. Even more tellingly,
physical arbs and premiums have
surged, most notably Turkeys physical
premium reaching $140/oz in 1H and
Chinas (SGE) physical gold premium
spiking to $140/oz in September ’23,
vs international benchmark prices.
Chinas premium spike is more an
indication of supply constraints
(curbed Gold import quotas) and
macro dynamics (a weak yuan as
the economy destabilizes), but one
cannot ignore the symbolism of very
real cracks in physical indicators in
key regions – this is not a bearish

Overall, the Feds “higher for longer”
threat – now targeting over 5% over
18months – is enough to keep the
$2000 lid on Gold prices in the short-
term. However, US data is weakening
incrementally but not collapsing like
in other countries. We continue to
believe that in contrast to Q3’23,
Q4’24 will likely be a bigger slog for
the US growth creating unchartered
territory for risk assets and thus
eroding some of the haven appeal of
the US$ as these series of domestic
data ‘papercuts’ start to bite and the
worsening of international conditions

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