Month: December 2021

Neils Christensen – Friday December 10, 2021

in November, after a 0.9% rise in October. The data beat consensus forecasts as economists were forecasting a 0.7% rise.

For the year, the report said that headline inflation rose 6.8%. The report said this is the “largest 12-month increase since the period ending June 1982.”

Annual inflation rose in line with expectations. Some economists were bracing for inflation to rise above 7%.

Meanwhile, core CPI, which strips out food and energy costs, increased 0.5% last month, up from a 0.6% increase in October. The data was in line with expectations. For the year, core CPI is up 4.9%.

The gold market moved into positive territory in an initial reaction to the firm headline number. February gold futures last traded at $1,779.50 an ounce, up 0.18% on the day.

Looking at some of the components of the report, consumers continue to feel the pinch of rising energy prices. The report said that the gasoline index increased 6.1% last month, pushing the energy index up 3.5%. For the year, energy prices are up 33.3%.

Food prices also increased, rising 0.7%. For the year, the food index is up 6.1%.

The report said that the rise in food and energy prices is the most in 13 years.

Katherine Judge, senior economist at CIBC, said that with inflation hitting another multi-decade high, the Federal Reserve could be on track to raise interest rates by June 2022.

“While December will see some relief from lower energy prices on omicron, causing total inflation to decelerate, there is scope for supply chain issues to prop up core goods prices again as omicron spreads globally and disrupts production,” she said. With inflation at a lofty pace, the Fed is set to accelerate its QE tapering timeline at the December meeting, to finish in the early spring, and to allow for a rate hike in Q2 2022, when the winter wave of Covid could be behind us.”

Neils Christensen

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Rajan Dhall Monday December 13, 2021

Russian nationals have bought a record amount of gold since 2014, the Russian media has reported (Sputnik). They bought four tonnes of gold bullion and coins in the past nine months, which is around 8% more when compared to the previous year, the reports specified.

Traditional gold investments have become very popular in other countries as well, with Americans having purchased 91.3 tonnes of the yellow metal in the past nine months (+79%), while in China and India gold buying has surged by 54% and 24% respectively.

The large difference between the amount of purchased gold can be put down to a 20% value-added tax (VAT) rate on gold bullion in Russia, which is the highest in the world. The Russian authorities have been considering a bill to cancel VAT on gold investments recently as part of a broader program to support domestic gold demand. According to the latest reports, they will go ahead with this plan starting 2022. Yet, some experts and officials have been sounding alarms regarding potential budget losses for Russia once this bill is approved, and about the risks of the country running out of gold.

Gold is currently stuck in a very heavy consolidation pattern. The price is 0.30% higher on the session but has been hovering around $1787/oz for around 14 sessions. There are some key central bank events that could get the markets moving this week. The market is looking to gather information about how the new omicron COVID-19 variant could hinder plans. The Fed has been aggressive in comparison to the ECB, some Fed members are looking for a further reduction in QE, and even interest rate rises by the summer of next year (2022). This week could give us some more information about the trajectory of this plan. The next FOMC meeting will be on Wednesday 15th

By Rajan Dhall

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Neils Christensen Thursday December 09, 2021

The first quarter of 2022 could represent the high water mark for gold prices next year, according to commodity analysts at Société Générale.

In a report published Thursday, the analysts said they see gold prices trading around $1,900 an ounce by the second quarter. Last month the French bank said that they see gold prices pushing to $1,945 in the first quarter of 2022.

The bank reiterated that although gold prices have struggled through 2021, it remains optimistic on the precious metal as low real interest rates will continue to support prices.

“Despite Powell’s renomination and his hawkish stance, our rates strategists do not expect interest rates hikes before 2Q22. This, combined with our economists’ above-consensus inflation forecast, points to negative real rates; a perfect mix of for gold,” the analysts said.

The analysts also said that the critical element for higher gold prices remains investors’ demand for gold-backed exchange-traded products. They noted limited scope for investment demand to push prices higher than $1,900 an ounce.

“ETF holdings are only 11.6% below their recent record, and still much higher than the average for the past decade. This indicates that investors have limited dry powder to allocate large amounts to gold,” the analysts said.

Looking past the first half of 2022, SocGen said it sees growing headwinds for gold as inflation is likely to have peaked and the Federal Reserve starts to raise interest rates.

“We expect rising real rates to become a strong headwind for gold only in 2H22,” the bank said.

One saving grace for the gold market could be further central bank diversification. The bank said that central bank gold purchases should help support prices next year.

“As the economic world becomes more multipolar, it is less important for central banks to hold USD. Central banks, especially in EM countries such as China and India, keep a low share of reserves in gold compared to western economies, and a partial catch-up would greatly support demand for the precious metal,” the analysts said.

While $1,900 an ounce is SocGen’s base-case scenario, the analysts said they see a 25% chance of prices falling to $1,700 an ounce or rising to $2,100 an ounce. They said that these two outlooks depend on the growth trajectory for the global economy that continues to be impacted by the COVID-19 pandemic.

“Our upside economic scenario would be bearish for gold as it assumes new COVID strains are effectively combatted via high vaccination rates and drug treatments. This would reduce risk-off sentiment, which is detrimental for gold, but more importantly would lead to easing of restrictions and thus higher services consumption,” the analysts said. “Our downside economic scenario would be bullish for gold as central banks around the world would have to keep monetary policies highly accommodative for their economies to cope with renewed COVID restrictions.”

By Neils Christensen

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