Synopsis: Silver, other than being a precious metal, has more usage in the industrial sectors and thus, industrial demand also guides its movement. Furthermore, gold also holds influence over silver prices.
Silver witnessed a roller-coaster ride in 2022, thanks to increased volatility in the bullion market and industrial metals but managed to deliver around 15% returns to investors. The metal faced bouts of profit taking but geopolitical tensions kept its demand intact.
Silver, other than being a precious metal, has more usage in the industrial sectors and thus, industrial demand also guides its movement. Furthermore, gold also holds influence over silver prices.
Rahul Kalantri, VP-Commodities, Mehta Equities, said, “In the mid of 2022, we saw see a significant fall in silver prices because of the low industrial demand due to a global slowdown and a drastic jump in dollar index as well as bond yields.”
Silver has its own return characteristics and is an attractive commodity in the present market conditions.
NS Ramaswamy, Head of Commodities, Ventura Securities said, “The gold-silver ra ..
Silver price picks up bids to refresh multi-day high.
Overbought RSI can challenge XAG/USD bulls, $24.75 in focus.
Convergence of 21-DMA, bullish channel’s lower line highlights $22.70 as the key support.
Silver price (XAG/USD) portrays an uptick to refresh the eight-month high at $24.30 during Wednesday’s Asian session.
The bright metal rose the most since November 04 the previous day, which in turn propelled the RSI (14) towards the overbought territory. As a result, the quote’s further upside appears doubtful.
This suggests hardships for the XAG/USD bulls as they approach the upper line of the seven-week-old rising trend channel, close to $24.75 by the press time.
Even if the Silver buyers manage to cross the $24.75 hurdle, the 78.6% Fibonacci retracement level of the metal’s March-September downside, near $24.90, as well as the $25.00 round figure, will challenge the commodity’s further advances.
Dec 21 (Reuters) – Gold prices eased in a tight range on Wednesday as the U.S. dollar firmed, although bullion was not far from a one-week high scaled in the previous session as traders looked ahead to impending economic data later this week.
Spot gold XAU= fell 0.2% to $1,813.23 per ounce by 0957 GMT, after rising more than 1% on Tuesday on the back of a dip in the dollar. U.S. gold futures GCv1 eased 0.2% to $1,822.70.
“After yesterday’s sharp rally, traders are waiting for fresh cues, especially from tomorrow’s GDP data and the performance of U.S. dollar,” said Hareesh V., head of commodity research at Geojit Financial Services.
Reports of a surge in COVID-19 cases in China may be another trend setter for the market, he said, adding prices are most likely to be choppy, possibly between $1,760 and $1,840.
The dollar index .DXY was firm on the day after a yen driven fall in the last session following a Bank Of Japan surprise policy tweak.
On the data front, the U.S. gross domestic product (third estimate) due on Thursday and the core personal consumption expenditure (PCE) price index scheduled on Friday are also on the investors’ radars.
Gold prices have risen nearly $200 since falling to a more than two-year low in late September as expectations around slower rate hikes from the Fed dented dollar’s allure.
“As we head into 2023, the Federal Reserve is expected to pivot in its rate hiking drive and the dollar is likely to soften, benefiting gold due to the inverted price correlation between the two assets,” Ricardo Evangelista, senior analyst at ActivTrades said.
While gold is traditionally considered a hedge against inflation it tends to loose its shine in a higher interest rate environment.
Silver catches fresh bids on Tuesday and rallies to the $24.00 neighbourhood.
The technical setup favours bulls and supports prospects for additional gains.
A break below the $22.80 confluence is needed to negate the positive outlook.
Silver gains strong positive traction on Tuesday and rallies to a fresh daily high, back closer to the $24.00 mark in the last hour. The white metal, however, trims a part of its intraday gains and retreats to the mid-$23.00s heading into the North American session.
Given the recent bounce from a confluence comprising an ascending trend-line extending from November low and the 100-period SMA on the 4-hour chart, the bias seems tilted in favour of bulls. The positive outlook is reinforced by the fact that oscillators on the daily chart are holding comfortably in the bullish territory and have again started gaining traction on the 4-hour chart.
That said, RSI (14) on the 1-hour chart flashes slightly overbought conditions and holds back traders from positioning for any further gains. Nevertheless, the XAG/USD still seems poised to surpass the $24.00 mark and retest the multi-month top, around the $24.10-$24.15 area touched earlier this month. Some follow-through buying should pave the way for additional near-term gains.
On the flip side, the $23.30 horizontal support now seems to protect the immediate downside ahead of the $23.00 mark and the aforementioned confluence, currently around the $22.80 region. A convincing break below will negate the constructive set-up and prompt aggressive technical selling. The XAG/USD might then slide to the next relevant support near the $22.00 round figure.
Business activity declined sharply in December. It signals an upcoming recession – a time that suits gold particularly well.
The economic downturn is gathering pace. The flash US PMI Composite Output Index came at 44.6 in December, down from 46.4 in November. It was the sharpest decline in business activity since May 2020, excluding the initial pandemic period, since the Great Recession. The strong decrease in new orders drove the decline in business activity, as inflation and higher interest rates dampened demand.
Both services and manufacturing are suffering. The Flash US {{ecl-106US|Services}} Business Activity Index registered 44.4 in December, compared to 46.2 in November. The fall in the services was the fastest in four months and among the quickest in the series history that started in October 2009.
Meanwhile, the Flash US {{ecl-829USManufacturing PMI}} posted 46.2 in December, down from 47.7 in November. It was the fastest downturn since the initial pandemic period in 2020, which was driven by one of the sharpest declines in new orders since the global financial crisis of 2008-9.
Source: By Bart Melek, Global Head of Commodity Strategy, TD Securities
After over a decade scraping the bottom, 12-month gold lease rates have moved distinctively higher to trend above 50 bps, as US monetary policy started to tighten aggressively.
With the Fed continuing to take rates higher in the face of sky-high inflation, real interest rates will continue to rise at an accelerated rate across much of the short end of the Treasury curve. With that, speculative long activity will wane amid higher carry and rising opportunity costs. This implies that gold yields should reach multi-decade highs into 2023.
The widespread view that gold does not offer a yield is a misconception. While income generation from gold is generally not available to most private investors, central banks can actively manage their holdings to deliver returns. This can happen in two major ways: (a) bullion reserves can be lent out to earn the gold deposit rate, or (b) the metal can be swapped for dollars at the gold offered forward rate (GOFO) or the swap rate.
While central banks are also likely to capitalise on the higher gold yield environment by making gold available to the market, they are unlikely to reduce holdings. Gold reserves offer the benefit of being highly liquid holdings, which possess both pro and counter cyclical properties, are a well-recognised store of value for many millennia and are considered strategic assets which are no one’s liability. Physical holdings are also impervious to sanctions.Gold Interest Rate Mechanics
Central banks can generate material yield from gold holdings via uncollateralised loans to a bullion bank. Given that the yellow metal is a monetary asset for central banks, it can be lent out on a term deposit like any other currency in their reserve portfolio. Most commonly, a central bank will place gold on deposit with a bullion bank, in return for a deposit rate. Maturities can vary, but 1-month, 3-month and 12-month tenures are the most common. At maturity, the gold is returned with the interest paid either in gold or fiat.
Deposit rates are derived and set independently by bullion banks. Due to gold’s inherently lower risk (eg. no one’s liability), the yellow metal tends to deliver lower returns than corporate or even government bonds.
Yield from their gold holdings can also be generated via a gold swap, or more specifically, a repurchase agreement that simulates a swap. In this instance, a central bank sells its gold to a bullion bank with the promise to buy back the gold at a later date. The central bank pays interest equivalent to the GOFO rate (forward swap rate).
In this context, the GOFO rate is akin to a US dollar loan using gold as collateral. Formally, it is defined as the rate at which market-making members of the London Bullion Market Association (LBMA) will lend gold on swap against US dollars. The central bank is then able to reinvest the funds at LIBOR (more recently SOFR) and earn the premium between the dollar rate and GOFO, which amounts to the gold lease rate.
The gold lease rate is typically an over-the-counter instrument, it can be best comprehended through the interaction of the demand and supply of borrowed gold, which will be the focus for the purpose of discussion.
Entering a forward sale agreement
Exiting the forward sale agreement
Source: World Gold CouncilDecades-High Gold Yields – A Potential Boon For Central Banks
While volatile, we project that the market environment is conducive to delivering consistently higher positive lease rates, which should be quite accretive for central banks willing to deposit metal with a bullion bank in good standing.
Six-week-old ascending trend line acts as the key support.
Silver price (XAG/USD) fade the previous day’s recovery to around $23.25 during early Monday.
In doing so, the bright metal retreats from the 61.8% Fibonacci retracement level of March-August downside and the 10-DMA level. It’s worth noting that the stated Fibonacci level is also known as the golden ratio and is considered a strong technical resistance.
Not only the metal’s pullback from the strong resistance but the looming bear cross on the MACD, as well as the nearly overbought RSI (14), also tease the Silver bears.
However, a clear downside break of the 10-DMA support near $22.00 appears necessary to convince sellers.
Following that, an upward-sloping trend line from November 03, close to $22.60 by the press time, could challenge the XAG/USD bears before directing them to the 50% Fibonacci retracement level of $22.25.
If at all, the Silver bears keep the reins past $22.25, the odds of witnessing a slump toward October’s peak of $21.25 can’t be ruled out.
On the flip side, a daily closing beyond the 61.8% Fibonacci retracement level of $23.40 could recall the Silver buyers and can poke the monthly peak surrounding $24.15.
Australia’s A$200 billion ($134.28 billion) sovereign wealth fund is increasing exposure to gold, commodities, private equity and infrastructure as it warns the future will echo the low-growth, high-inflation era of the 1970s.
By Lewis Jackson
SYDNEY (Reuters) – Australia’s A$200 billion ($134.28 billion) sovereign wealth fund is increasing exposure to gold, commodities, private equity and infrastructure as it warns the future will echo the low-growth, high-inflation era of the 1970s.
The Future Fund outlined the changes, which also included widening its currency basket, in a note on Friday that questioned the value of traditional 60-40 portfolios and called for an investing shift to confront a world dealing with war, inflation and climate change.
“In this kind of environment there is a real risk of simultaneous slow growth, high unemployment, and rising prices that has some parallels with the stagflationary period that struck developed markets in the 1970s,” the note said.
Investors large and small are scrambling to adjust portfolios and philosophies undermined by the simultaneous cratering of equity and bond markets.
The eight-page note called time on four decades of investment tailwinds including falling interest rates and taxes, energy abundance and growing globalisation driven by China’s rise.
Investors now faced a world corrosive to asset prices: more war, the risk of capital controls and confiscations, bigger government, and the spectre of higher inflation.
In response the Future Fund is implementing six broad sets of changes, including more focus on dynamic asset allocation and liquidity.
“There are no simple answers for the investment community. Traditional approaches have delivered strongly, but it is doubtful they are fit for purpose in the future,” it said.
Report authors argue Russia’s invasion of Ukraine hints at a future of destabilised energy markets as well as higher inflation and taxes as countries prioritise security and resilience over efficiency.
($1 = 1.4894 Australian dollars)
(Reporting by Lewis Jackson; Editing by Stephen Coates)
* European Central Bank policy meeting due on Thursday * More platinum deficits loom after record 2020 undersupply – WPIC * Platinum prices likely to reach $1,300/oz over 12 months – UBS (Updates prices) By Shreyansi Singh March 10 (Reuters) – Gold eased on Wednesday after registering its biggest jump in two months in the last session, as higher U.S. Treasury yields and a stronger dollar remained a stumbling block for bullion. Spot gold was down 0.2% at $1,711.21 per ounce by 1207 GMT after rising more than 2% on Tuesday. U.S. gold futures fell 0.5% to $1,709.20. U.S. yields regained momentum on Wednesday, raising the opportunity cost of holding bullion, while the dollar also gained. “Gold prices are likely to remain under pressure, while concerns about inflation are front of mind for the market,” said CMC Markets UK’s chief market analyst, Michael Hewson, adding a stronger dollar could be a further drag on bullion prices over the next few days.
Gold is attempting to stabilize at the 2019-2021 uptrend at $1667 but the yellow metal needs to do more work to negate the downside pressure, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, reports.
See – Gold Price Analysis: XAU/USD to near the confluence support zone at $1,660-$1,670 – DBS Bank
Key quotes
“The market has sold off towards the $1670 June low and the $1667 2019-2021 uptrend. This is currently holding the downside.”
“Initial resistance is offered by the $1760/$1772 band, which is the May high and previous 50% retracement and the short-term downtrend in order to alleviate downside pressure and signal recovery to the 200-day ma at $1861.”
Source: World Gold CouncilDecades-High Gold Yields – A Potential Boon For Central Banks