For the first time in three weeks, central banks increased their gold bullion reserves, while hedge funds strengthened bets that a rally would occur. Comex futures prices reached a two-week high on Thursday, ending the U.S. trading day on a positive note.
Activity was characterized by bargain purchases and covering short positions. Precious metals were also supported by firmed prices for crude oil and a declining index for the U.S. dollar.
The World Gold Council estimates that central banks increased their golden holdings by 439.7 tons during 2022. This is the most in nearly five decades and the same level of purchasing may occur this year. Data from the International Monetary Fund (IMF) revealed that central banks in Turkey, Russia, and Mexico enhanced their reserves with approximately 44.8 metric tons of the precious metal, an increase worth $2.39 billion. Mexico purchased 16.8 tons, Russia bought 16.5 tons, and Turkey added 11.5 tons. The IMF also reported recent reserve increases by central banks in Belarus, Tajikistan, Ukraine, and Kazakstan.
The price of Gold has fallen, because the Federal Reserve has been currently raising interest rates to slow down inflation. In regards to buying Gold, gold’s ceiling price was $2,078 per troy ounce on August 6, 2020 and gold’s floor price was $1,185.40 per troy ounce on September 27, 2018. Gold’s floor price was because if gold’s price had continued to drop lower, then it would have been less profitable for miners to continue to produce gold due to its All-In-Sustaining Costs which in 2018 had been around $1,100 per troy ounce. If miners produce less gold, then its supply goes down. In 2022, Gold’s All-In-Sustaining Costs has been around $1,232 per troy ounce. Therefore, an opportunity to buy gold would be near Gold’s All-In-Sustaining Costs if gold’s price should drop that low again. Regarding the United States accumulated the largest gold reserves following World War 2 which peaked at 24,500 tonnes in 1950. However, after 21 years, the United States’ gold stockpile dwindled down to 8,133.5 tonnes as foreigners redeemed their U.S. dollars for gold at $35 per troy ounce from the Bretton-Woods Agreement. However, on August 15, 1971, President Nixon abruptly halted the severe depletion of the United States gold reserves.
The Commodity Futures Trading Commission (CFTC) revealed a 2.5 percent increase in net long positions by fund managers during the week ending April 17. According to data from the CFTC, wagers on price increases rose to 112,275 options and futures, after experiencing a three-year low during the previous week. The net long position is now 56 percent below the August 2011 peak, allowing room for new long positions, reported UBS AG analyst Edel Tully. However, not all is positive, as the UK recently tumbled into a double-dip recession, its first since the 1970s. According to IMF predictions, the euro region is expected to contract in the foreseeable future.
The U.S. has had its own economic worries.
So far, the country has been through 3 rounds of quantitative easing, The Federal Reserve purchased a total of $2.3 trillion in debt, leading gold prices to increase approximately 70 percent. On Wednesday, Federal Reserve Chairman stated that if needed, he is ready to take additional measures to stimulate the economy. GoldCore Ltd. brokerage Executive Director Mark O’Byrne commented that the very loose monetary policies during recent years show no indication of ending in the near future. His firm is advising clients to purchase the golden metal on the dip.
Over the near-term, bears have a slight advantage from a technical perspective because prices of the metal are still within a downtrend that has lasted for two months. If prices close at a weekly high today, bulls will have renewed upside technical movement over the near-term. Bloomberg recently surveyed 28 analysts and found that 14 of them believe that gold prices will rise next week, while nine remained neutral. This is the highest proportion taking those stances in two weeks.
So far this month, gold has increased 5.7 percent on the New York Comex. Currently, prices are 15 percent below their 2021 peak. Options traders are taking a bullish outlook. The most widely held contract on Comex gold futures features the right to purchase the metal at $2,200 by July. This is 33 percent higher than current prices. According to Bourse data, owners of the seven most popular options have the right to purchase at prices between $1,800 and $2,300.
Bloomberg data reveals that owned exchange-traded products backed by bullion currently represent 2,389.6 tons of the metal. This is only 0.9 percent shy of the March 13 record figure. In a report issued April 24, Goldman Sachs Group Inc. revealed its near-term neutral outlook for raw materials and the belief that in 12 months, gold will be trading at $1,940.
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