ANZ: Turning Tide

ANZ note that “a peak in U.S. inflation suggests a downside risk to gold prices,” although they flag “a recession in the U.S. and a reversal of the Federal Reserve’s stance could turn the tide next year.” The also caveat their opening statement by noting that “increasing recessionary pressure and geopolitical risks could protect the downside.”

• “Economic challenges are a downside risk to physical gold demand. Jewellery demand in India is weakening as inflation eats into people’s disposable income. Imports of gold fell in June and July to 46t and 41t following a hike in India’s import duty. We see imports falling in H222, as the government discourages gold buying to slow the fall in the domestic currency. China’s gold imports jumped in June to 107t in June as COVID-19 restriction ease. Lower prices also encouraged buying, but the challenging economic outlook remains a drag. Central bank purchases were strong, with net buying hitting 270t in H122. Currency devaluation against the USD could prompt this. Iraq, Turkey, India, Kazakhstan and Uzbekistan were major buyers. ETF holdings are falling amid monetary tightening and the stronger dollar. While speculative net long positions have seen some recovery due to short covering.”
• “A technical downtrend line has been broken, and prices hit the psychological level of USD1,800/oz following release of the U.S. CPI print. However, gold failed to hold above that key level. The candlestick formation on Wednesday showed a bearish signal, as the price opened and closed near the day’s low. Prices are near the 50-day moving average. Settling below that would suggests that the price could again fall to theUSD1,750/oz range. Should prices fall in the downward channel, the market could come under increasing pressure. A print back in the range of downtrend could see the price heading below USD1,700/oz.”