Gold Silver Desk

Neils Christensen    Thursday April 20, 2023

Inflation in the U.S. is expected to continue to moderate. However, pension funds are still not taking any chances as they increase their exposure to gold, according to the latest report from one global risk management firm.

In a report published Thursday, analysts at Ortec Finance said that a study of U.S. public sector plan professionals, who collectively manage more than $1.3 trillion, said they were 90% confident that inflation is declining.

Globally, more than half of public pension fund managers, with total assets under management of more than $3 trillion, said they expect inflation to be 3.3% or lower within a year, which is down sharply from last year’s survey, where inflation was expected to be around 6.4%. The survey showed that only 10% of global money managers expect inflation to be over 6%.

The survey results come a week after the U.S. Labor Department said its Consumer Price Index rose less than expected in the last 12 months to 5%. While fund managers are optimistic that inflation will continue to trend lower from last-years 40-year highs, analysts at Ortec said that they still aren’t taking any chances as they increase their exposure to gold and other commodities.

“There is genuine optimism that lower inflation will become well-established with very few managers expecting it to be as high as it currently is within a year or two,” said Marnix Engels, managing director of Pension Strategy at Ortec, in the report.

“Many US public sector pension plans have acted to manage their balance sheet effectively in order to achieve long-term objectives while dealing with the short-term risk from inflation. Strategic asset allocation decisions are however, becoming increasingly complex as a result of the ever-growing number of asset classes and investment strategies, and the unique risks associated with them,” he added.

According to the research, about 70% of fund managers surveyed said they planned to increase their exposure to broad commodities; 40% specifically said they would increase their allocation to gold; in other alternative assets, 52% of managers said they would increase their allocations to infrastructure. Meanwhile, 42% said they increase increased their exposure to inflation-protected bonds.

Commodity analysts have said that hedge fund interest in gold as a strategic asset should continue to support the precious metal above $2,000 and potentially push prices to all-time highs. Analysts note that their bullish positioning in gold is still relatively low compared to last year when it made its first attempt at all-time highs.

The latest data from the Commodity Future Trading Commission shows that money managers are net long gold by 104,000 contracts, about 27% from the 2022 peak, the last time when prices were above $2,000 an ounce.

Analysts note that holding in gold-backed exchange-traded products also shows that investors are generally underinvested in gold compared to its previous run. In March, global gold-backed ETFs saw their first net inflows in 10 months.

Looking at the World’s biggest gold ETF SPDR Gold Shares (NYSE: GLD), it currently holds 926.57 tonnes of gold, down compared to the nearly 1,100 tonnes held in March 2022.

Ortec Finance is a leading global provider of risk and returns management solutions for pension funds and other institutions, as it creates risk models to help them achieve their investment goals.

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• Neils Christensen    Friday March 31, 2023 19:01

A shift in risk sentiment, coupled with a weak U.S. dollar and growing expectations that the Federal Reserve will cut interest rates in the second half of the year, is propelling silver prices higher, and the precious metal is outshining gold.

With March coming to a close, silver has seen significant gains this month, rallying more than $3, its best monthly performance since December 2020. May silver futures settled Friday at $24.235 an ounce, up 1% on the day and nearly 4% for the week.

Silver’s rally is even outperforming gold as the gold-silver ratio has fallen to a two-month low, currently trading around 82 points.

In a note Friday, Fawad Razaqzada, market analyst at Forex.com, said that the ratio’s drop last week below 86 points was a significant move, breaking support of a bearish trend line.

“If the bullish trend remains intact for both metals, silver should shine more brightly, is what this chart is telling us,” he said.

Looking at silver’s technical outlook, Razaqzada said that with the market notching higher highs and higher lows on the chart, it could be only a matter of time before the precious metal pushes above $24.50 an ounce, breaking its two-year downtrend.

Ole Hansen, head of commodity strategy at Saxo Bank, said silver has room to rally to $25 or even $27 an ounce if the precious metal sees a close above $23.90.

“The metal remains under-owned,” he said in a comment on Twitter.

Looking at the precious metal’s fundamentals, analysts said silver is simultaneously benefiting as a safe-haven and risk-on asset.

Analysts note that easing fears over the global banking crisis is generating some optimism for the global economy, supporting silver’s industrial component. At the same time, concerns that this is only the eye of the storm are providing some safe-haven support to the precious metal.

Even if the banking crisis is resolved, Jonathan Butler, precious metals analyst at Mitsubishi, said that one more sleeper issue could continue to support precious metal safe-haven demand: the quickly approaching debt ceiling.

“The nonpartisan Congressional Budget Office has estimated the government will exhaust its emergency tools sometime this summer, which raises the prospect of a default unless lawmakers can raise or suspend the ceiling. Coming at a time of uncertainty and increased financial commitments from the government as it may be forced to backstop more bank depositors, silver (and gold) may continue to be in demand as a safe haven,” Butler said in a report published Thursday.

Similar to gold, silver is also benefiting as a monetary metal as cooler-than-expected inflation data is adding to expectations that the Federal Reserve has finished raising interest rates.

Friday, the U.S. Department of Commerce said its core Personal Consumption Expenditures price index increased 0.2% last month, compared to January’s increase of 0.5%. The data was slightly weaker than expected, as economists forecasted a 0.4% rise. In the last 12 months, core PCE inflation rose 4.6%.

According to the CME FedWatch Tool, markets see a 50% chance that the Federal Reserve holds rates steady after its May monetary policy meeting. At the same time, markets continue to expect a rate cut in the second half of the year.

While there is still significant bullish support for silver, analysts at TD Securities said that the market could see some profit-taking in the near term. However, the bank added that the precious metal continues to benefit from solid physical demand, particularly from China.

“The white metal continues to hold a strong risk-reward profile given recent signs that Shanghai traders are accumulating silver once more, which points to resilient demand for silver even as commodity internals point to sluggish demand for raw materials,” the analysts said. “That being said, the white metal will be more likely to reach escape velocity should prices break above $25.20/oz, which would favor a resumption in long acquisitions from trend followers.”

By Neil Christensen

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Neils Christensen – Tuesday February 07, 2023

The start of the year was a historic moment for Croatia as the nation became part of the eurozone and adopted the euro as its national currency. The move also shows how gold remains an essential asset for central banks.

Last month Krishan Gopaul, European, Middle East and Asian market analyst at the World Gold Council, reported that Croatia bought nearly 2 tonnes of gold in December. This was the central bank’s first gold purchase since 2001.

According to Croatia’s public news agency Hrvatska radiotelevizija – HRT, the gold purchases were related to the nation’s entry into the eurozone. Croatia had to transfer some of its foreign reserves to the European Central Bank, which it is now a member of.

In the interview with HRT, Croatian National Bank (CNB) governor Boris Vujcic, via Google translate, said that they transferred 639.9 million euros to the ECB at the start of January.

The gold purchased, roughly 56,256 ounces and worth more than $101 million, represented 15% of the payment to the ECB, HRT said. The other 85% of the payment was in U.S. dollars, valued at $580.1 million. The central bank said it bought the gold in the open market for slightly more than $1,800 an ounce.

According to HRT, Croatia’s gold reserves have been the subject of heated debate over the years. In 2015 it was revealed that the nation’s gold was sold in 2001 for around $272 an ounce. Croatia had 13.2 tonnes of gold after it broke away from Yugoslavia in the early 1990s.

Croatia joined the European Union in 2013 and it took nearly ten years to become a member of the eurozone. Nations must meet specific economic criteria to become members of the eurozone, including sound public finances, sustainable price stability and a stable currency.

While Croatia bought gold for the first time in more than 20 years, it certainly wasn’t alone. Last month the World Gold Council noted that central banks bought 417 tonnes of gold in the fourth quarter of last year.

Central banks bought 1,136 tonnes of gold last year, the most since 1967 and the second-highest amount since 1955.

By Neils Christensen

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Anna Golubova – Tuesday January 31, 2023

Correction: Originally, the WGC reported that 2022 central bank gold buying was the second highest on record. On Feb. 7, the analysts amended their research, stating that 2022 central bank demand hit an all-time high. The article has been updated to reflect the corrected data.

Central banks had their eyes on gold last year, purchasing 1,136 tonnes — the most on record, according to the World Gold Council (WGC). This also marked a more than 150% increase from last year.

The WGC’s Gold Demand Trends report from Q4 revealed that central banks bought an additional 417 tonnes of gold, following Q3’s massive purchase of 445 tonnes.

“Geopolitical uncertainty and high inflation were highlighted as key reasons for holding gold,” the WGC said in a report published Tuesday.

Central banks are paying attention to gold because of how it performs during times of crisis and its role as a long-term store of value. “It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers and at an accelerated pace,” the report pointed out.

The last time there was so much gold buying by central banks, the U.S. dollar was still backed by gold.

“Central bank purchases are highlighting the fact that gold remains a very important asset in the monetary system. Even though gold is not backing currencies anymore, it is still being utilized. Why? Because it is a real asset,” Juan Carlos Artigas, Global Head of Research at the World Gold Council, told K-News.

Most of the 1,136 tonnes total was once again “unreported,” said the report. “Echoing Q3, data for the final quarter of the year was again a combination of reported purchases and a substantial estimate for unreported buying,” the report highlighted.

Turkey was the biggest buyer in 2022

The Central Bank of Turkey bought the most gold out of all central banks in 2022 as it searched for protection against unchecked inflation. Turkey’s official gold reserves rose by 148 tonnes to 542 tonnes, marking the highest level on record.

In the fall, Turkey’s inflation accelerated to 85% before slowing to 64% in December. Turkey’s central bank was one of the very few that cut rates in 2022, taking the key interest rate from 14% to 9%.

China was also the big highlight from last year, as the People’s Bank of China (PBoC) resumed gold buying for the first time since 2019 by adding 62 tonnes in November and December and lifting its total gold reserves to over 2,000 tonnes for the first time.

“These announcements were significant given China’s historic position as a large buyer of gold, having accumulated 1,448 tonnes between 2002 and 2019,” the report added.

Countries in the Middle East also stepped-up buying, with Egypt purchasing 47 tonnes, Qatar 35 tonnes, Iraq 34 tonnes, United Arab Emirates 25 tonnes, and Oman two tonnes.

In Central Asia, Uzbekistan added 34 tonnes to its gold reserves in 2022, followed by the Kyrgyz Republic with six tonnes and Tajikistan with four tonnes.

India bought 33 tonnes in 2022, which was 57% lower than the previous year. “Intervention in the FX market to support the rupee during the year caused a decline in FX reserves of US$70bn, which may have impacted the bank’s gold buying. Its gold reserves now stand at 787t (8% of total reserves),” the WGC report noted.

Out of developed market central banks, Ireland was the only one that bought gold in 2022, adding three tonnes to its reserves in Q1.

Despite the strong interest in gold, there was some selling. Kazakhstan was the largest seller, reducing its gold holdings by 51 tonnes.

Germany sold four tonnes because of its ongoing coin-minting programme. Sri Lanka reduced its holdings by three tonnes, followed by Poland, the Philippines, and Mongolia, each selling two tonnes. Other sellers of at least one tonne were Bosnia and Herzegovina, Cambodia, and Bhutan.

Russia announced that would resume its gold purchases from domestic producers last year. But there was no update provided since the central bank sold three tonnes of gold in January of 2022.

Outlook for 2023

The WGC admitted that it would be hard to match last year’s demand in 2023, given the historical size of the purchases.

“It is also reasonable to believe that central bank demand in 2023 may struggle to reach the level it did last year,” the report said. “A slowing of growth in total reserves is likely to put pressure on some central banks, reducing their capacity to allocate to gold. We therefore think it likely that 2023 buying will be more moderate.”

The WGC also noted that central bank demand is difficult to forecast because it is often policy-driven. It added that “lagged reporting by some central banks means that we need to apply a high degree of uncertainty to our expectations, predominantly to the upside.” 

By Anna Golubova

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Neils Christensen – Thursday January 26, 2023

In her latest report, Nicky Shiels, head of metals strategy at MKS PAMP, described the sentiment in the precious metals market as primarily gold focused.

The comments come as gold prices have verged on a technical bull market with prices recently up nearly 20% from their November two-year lows. Shiels noted that the pullback in gold has been shallow.

Meanwhile, silver, which outperformed in November and December, has stalled, with prices treading water around $24 an ounce.

February gold futures last traded at $1,926.30 an ounce, down 0.84% on the day. At the same time, March silver futures last traded at $27.060 an ounce, up 0.50% on the day.

Gold’s strong start to 2023 has pushed the gold/silver ratio off its recent one-year lows and is currently trading back above 80 points. It now takes more than eighty ounces of silver to equal one ounce of gold. The historical average for the ratio is around 60.

“If one told any generalist gold was up $300+ in 3 months, most would expect silver at $30 ($25 minimum). However, perhaps it isn’t what’s wrong with silver but more what’s ‘right’ with gold,” she wrote in her note.

Shiels noted that the persistent inflation threat, ongoing volatility in the crypto market, geopolitical uncertainty, including the new debate in U.S. Congress over the debt ceiling and potential default, are all specific supportive factors for gold.

As to where gold goes from here, Shiels said the precious metal still has room to move higher. She added that this is the quietest bull market rally the market has seen in a long time. She said that the market is even close to being “frothy.”

“There are plenty calling out golds overextension and it’s clearly overbought on the short-term technical; however, 1) that view is consensus, urggh and 2) it may be the case that, like in steady bull markets, it doesn’t have to correct lower to work off overbought conditions, but just consolidate before relaunching,” she wrote.

Although next week’s Federal Reserve monetary policy decision poses a risk for gold, Shiels said that she expects the market to overcome the wall of worry. Currently, markets have all but priced in a 25 basis point hike next week, which is a significantly slower pace compared to the Federal Reserve’s last four 75 basis point moves.

“Although it really should be non-event with 25bp priced in for Feb and really, who cares about whether there is another 25bp in March or not when gold’s overcome 4x 75bp super-sized hikes in 2022,” she said. “Context is everything, but its still in Golds DNA to worry about most FOMCs.”

Looking ahead, Shiels said that she expects gold prices to grind higher as she believes this is more than just a momentum trade.

“The opportunity is not in a gold correction, but in silver & platinum playing catchup (in what could get messy given liquidity constraints), which is only more likely after the FOMC and Chinas return,” she said.

By Neils Christensen

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