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Gold Prices 'Supported' at $1800 by G20 Tensions, Chinese Demand, Recession Threat

GOLD PRICES held above what analysts called support at $1800 per ounce on Monday, despite the US Dollar and bond yields both steadying at multi-month highs amid recession warnings, new geopolitics tensions and continued bargain hunting in bullion from China, writes Atsuko Whitehouse at BullionVault.
Spot gold prices edged higher to $1812 per ounce after dropping earlier to a 2-month low at $1806.  
The Dollar price of gold has now lost 7.6% since the 9-month high of $1959 reached at start-February, the day after the US Federal Reserve raised its key interest rate for the 8th meeting in a row and said that it doesn't foresee cutting rates in 2023.
"A higher for longer [Fed] is playing out in lower for longer precious pricing," says Nicky Shiels, head of metals strategy at Swiss refining and bullion finance group MKS Pamp, pointing to the US Dollar's continued rally after the Fed's preferred inflation indicator – the core PCE price index – came in higher than expected.  
The Dollar index – a measure of the US currency's value versus its major peers – today edged lower after jumping 0.6% to hit a 3-month.
"But at $1800, physical floors and underpriced escalating geopolitics and 'hard landing' risks should see gold find a bottom," Shiels says.
Chart of gold priced in US Dollars, last 12 months. Source: BullionVault
Gold prices on the Shanghai Gold Exchange continued to show a historic premium to London on Monday, suggesting strong demand in the precious metal's No.1 consumer nation by offering $35 per ounce to new imports, more than 4 times the typical incentive.
In 2022 the Shanghai gold premium averaged $11 per ounce on data compiled by BullionVault, up from $5 in 2021 and reversing an average discount of $26 seen on 2020's strict Covid lockdowns.
"Gold demand in China is expected to remain strong over the coming weeks, as investors look for safe-haven assets amid the geopolitics tension," Reuters quotes one regional bullion executive.
After the Chinese 'spy balloon' incidents and a growing ban on TikTok, the Chinese social-media app, from US government devices and university campuses, US-China tensions deepened at the weekend when after Beijing refused to join the rest of the G20 group of nations in condemning Russia on the 1st anniversary of its invasion of Ukraine.
"Sending military aid to Russia at this time...would be a bad mistake," said US national security advisor Jake Sullivan on Sunday, repeating last week's "warning" from Secretary of State Antony Blinken and saying "China should want no part of it."
On the economic front meantime, the Cleveland Fed's measure of US recession probabilities now sees a 62.7% chance of a downturn by February 2024, and the New York Fed's measure – also derived from the deeply inverted US yield curve – now puts the odds at 57.1%, up 10 points from its last reading.
The MSCI All-World index of global shares rallied by 0.3% ahead of the US opening on Monday after posting its steepest weekly decline since September and losing over 5% from early February's 6-month high.
"The fact that gold is still holding $1800 despite such a strong Dollar and high interest rates may be partly because of physical bargain hunting in China, and perhaps also central bank buying," says Bruce Ikemizu, chief director of the Japan Bullion Market Association in his latest note.
Gold priced in Euros today edged lower to €1716 while the UK gold price in Pounds per ounce fell 0.5% to £1509 as Sterling strengthened on the FX market on news that the British Government "is on the cusp" of securing a new Brexit deal with the European Union over trading arrangements for Northern Ireland.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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