Gold News

Gold Price Dips Before Fed Rate Rise, China's Private Demand Jumps 70%

The PRICE of GOLD edged back in London trade on Wednesday ahead of the US Federal Reserve's July interest-rate decision, while silver held unchanged for the week so far.
 
Gold still showed a $50 rise for the month to date after new data said household demand in China, the precious metal's No.1 consumer market, defied weaker-than-expected economic growth across the 2nd quarter of 2023 to jump by 71% from the same period last year.
 
Benchmark US Treasury yields meantime held at 1-week lows of 3.88% per annum on 10-year debt, but longer-term Eurozone and UK borrowing costs rose, taking 10-year German Bund yields up towards the highest in a week at 2.44% per annum ahead of tomorrow's European Central Bank meeting, also universally expected to result in a further rate rise.
 
Germany's consumer-price inflation rate re-accelerated in June from 6.1% to 6.4% per annum, bucking the wider 19-nation Eurozone's trend of further disinflation even as activity in the country's huge manufacturing sector sank at the worst pace since the depths of 2020's first-wave Covid crisis. 
 
"The disinflation seen in a succession of CPI figures may simply reflect the base effect of a comparison with 2022's exceptionally high energy and food prices," notes metals strategist Jonathan Butler at the precious metals division of Japanese conglomerate Mitsubishi, "and [even the US] Fed may still face an uphill struggle in getting its preferred inflation measure [of core PCE] back under 2% from its current level of close to 5%.
 
Betting on today's Fed rates decision says the US central bank is certain to make a further quarter-point rise to the highest since 2001 at 5.50%.
 
The end of 2023 will then see the cost of borrowing overnight banking reserves in the Fed Funds market finish the year at 5.47% according to CME analysis of futures trading this morning, down 1 basis point from Tuesday's rise to the highest such forecast since early March, eve of the mini crisis in US regional banking. 
 
The Fed itself projected an effective Fed Funds rate of 5.60% in its June 'dot plot' predictions. The FOMC will next update those projections at its September meeting.
 
Chart of gold priced in Dollars vs. end-2023 Fed Funds forecast from the futures market. Source: BullionVault
 
With the European Central Bank and then the Bank of Japan set to follow today's US Federal Reserve announcement on Thursday and Friday respectively, the impact on the US Dollar's exchange rate from this week's major central-bank rate decisions "will be key for precious" says Butler at Mitsubishi.
 
"For all that the Eurozone and other economies are raising rates aggressively, their underlying economic growth may be weaker than that of the US. [But] in the end, a weaker Dollar may do more to boost gold than lower inflation will erode it, and possible interest rate cuts augur well for bullion in the longer term."
 
While silver prices held in a tight range in US Dollar terms ahead of the Fed on Wednesday, unchanged from last weekend at $24.60 per Troy ounce, the Dollar price of gold dropped 0.4% from an overnight peak of $1974, its highest in 2 sessions.
 
The UK gold price in Pounds per ounce fell harder, dropping 1.1% from last Thursday's 5-week high of £1538, but the gold price in Euros held closer to the 5-week high of €1784 it touched this morning.
 
China's benchmark gold price in Shanghai meantime edged up to ¥457 per gram overnight, less than ¥5 below last Wednesday's new all-time SGE gold high.
 
State-mandated trade group the China Gold Association yesterday said that private-sector demand for gold rose over 16% in the first-half of 2023 from the January to June period last year.
 
China's domestic Yuan gold price rose 6.2% across Q2 to set a new quarterly average record above ¥447 per gram. Comparing the latest CGA figures with 2022 demand data compiled for and published by the global mining industry's World Gold Council, second-quarter gold jewelry buying in China rose 73% by weight in 2023 from the April-June period last year, while retail gold bar and coin demand rose by 67%.
 
"Thanks to the sustained and steady growth of residents' income and the increase in demand for financial protection," says the CGA, "physical gold investment and consumption have continued to grow rapidly.
 
But within the jewelry sector, and "because the price of gold remains high," it goes on, "consumers are more inclined to buy light weight products, and the growth rate of sales of products priced by weight is significantly higher than that of products priced by piece."
 

 

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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