GLD Gold ETF Expands Again, Central Bank Demand 'Resilient' Ahead of US Fed's New 'Dot Plot' Forecasts
Wednesday, 3/20/2024 14:33
The GOLD PRICE rose Wednesday after the giant GLD gold ETF expanded for a 3rd day running ahead of today's March interest-rate policy statement from US central bank the Federal Reserve.
Trading at $2163, £1703 and €1995 per Troy ounce, gold bullion prices neared 1-week highs in Dollar, Sterling and Euro terms, and set a fresh record in Japanese Yen above ¥10,500 per gram following yesterday's
central bank decision in Tokyo to finally end negative interest rates in the world's 4th largest economy.
Commodity prices meanwhile fell back and global stock markets traded flat with all eyes on the US Fed's 'dot plot' forecasts due later today.
While no one expects any change to Fed rates today, betting held firm that new projections from chairman Jerome Powell and his FOMC committee will reconfirm their December forecast of 3 interest-rate cuts in 2024 from today's current 2-decade high of 5.33%, holding the futures market's consensus prediction for Christmas at 4.65%.
Last night the giant SPDR Gold Trust (NYSEArca: GLD) ended the day larger for the 3rd session in a row, growing further in size from this month's new 5-year low for the world's largest
gold ETF with its longest stretch of investor inflows since end-August.
Weekly data compiled and published by GLD sponsor and mining-industry backed market development organization
the World Gold Council says that last Friday's jump in the number of GLD shares in issue – the
heaviest 1-day GLD gold ETF growth since mid-October – offset further profit-taking across European and Asian-listed trust funds.
Equating to just 0.03% however, last week's net 1 tonne growth in global gold-backed ETF holdings made for the first weekly inflow of 2024 to date and only the 5th weekly expansion across the past 6 months.
"The scale and speed of gold price moves in March is
more flow-driven and likely overdone," says Jianwen Sun, quantitative investment strategist at $216bn Swiss banking group Lombard Odier, pointing to
the surge in Comex gold futures and options speculation.
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"Nevertheless, this jump illustrates the power of investment flows while confirming our positive outlook for the metal. To be sustainable, higher prices need more fundamental support. That, we think, is already evident from real rates and physical demand."
Typically showing a strongly negative correlation against the price of gold, real interest rates – as tracked by the yield on inflation-protected US Treasury bonds – today slipped back below 2.00% per annum as the price of 10-year TIPS edged higher ahead of the Fed.
That was the highest real yield on US government debt since New Year 2009 when reached last August, but it remains half-a-point below October's 15-year high, touched as gold prices rallied from their lowest point of last year at close to $1800 per Troy ounce.
Here in March, "[China's gold buying] tails away slightly," says bullion-market specialist Rhona O'Connell at brokerage StoneX, pointing to the drop in Shanghai gold premiums over London quotes down towards $20 per ounce.
That's barely 1/5th the record incentive for new bullion imports into gold's No.1 consumer nation hit last autumn as
China's private-sector gold demand leapt amid the country's worsening financial slump. But it's still twice the historical average Shanghai premium, signaling the Chinese market's continued buying more than a month after the busy Lunar New Year 2024.
"India [is] also currently quiet," says O'Connell. But it "is likely to build interest ahead of Akshaya Tritiya" – the Hindu spring festival now widely promoted as an auspicious time to buy gold – falling this year on Friday 10 May, midway through the
world's most populous economy's national elections.
Demand for gold from central banks meantime remains "resilient" near its recent 8-decade highs, as Sun at Lombard Odier says, with latest data showing further accumulation already reported for February by China, India, Turkey, the Czech Republic and
Kazakhstan.
"A primary reason for this is to diversify foreign currency reserves in a changed geopolitical landscape after Western governments imposed sanctions on Russia and froze dollar assets," Sun goes on.
"This trend looks likely to continue...Since gold reserves only account for 5% of central banks' total reserves, there is ample potential strategic demand in the coming years."
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