2. Points To Be Covered Today:
• Inflation-Wary German Investors Continue To Eye Gold
• Three Factors To Drive XAU/USD Higher – DBS Bank
• Basel III And Gold - Central Bankers Locking The Fire Exits
• SPDR Gold Trust Holdings Rise To 1,045 Tons
3. Investor Confidence In Germany
Recently Jumped To A 21-year High
• Cheered by an acceleration of the domestic coronavirus vaccine programme and
concomitant slowing of the domestic third wave of coronavirus.
• But while optimism for an economic upturn runs high, it brings with it growing fears of
rising prices among inflation-wary German investors.
• Google searches for ‘inflation’ in Germany – having been on an upward trend since
October last year – surged in February after Eurozone annual headline CPI was
reported to have jumped to an 11-month high of 0.9%, since when it has only
accelerated.
• And with comments from both domestic and European central bankers further fanning
the flames of inflation expectations, gold has been very much on investors’ radars.
• Our Gold Demand Trends data shows that Germans bought more gold bars and
coins in 2020 than in any previous year, by some margin.
• And so far in 2021, they have maintained a pace of investing that far outstrips the
historical average, even when compared with the heady levels reached during, and in
the aftermath of, the Global Financial Crisis.
5. Investment In Gold Exchange Traded
Products Was Similarly Resilient In Q1
• Compared with the sizable outflows from funds listed in the US or elsewhere in Europe,
German funds registered only moderate losses, and have maintained steady – albeit small –
inflows since early April.
• German ETPs now hold €18.4bn in AUM, second only to the UK in Europe and close to the
July 2020 peak of €21.8bn.
• We know that German investors value gold as a means of protecting against inflation.
• In our extensive 2019 consumer research survey, 64% of German retail investors agreed
that gold is a good safeguard against inflation/currency fluctuations and 61% felt that it
would never lose its value over the long term.
• Almost half of the investors that owned gold bars or coins said that the main role of the
investment was to protect their wealth.
• Real estate/property was similarly associated with wealth protection. But savings accounts
were yet more likely to be seen as fulfilling this purpose – three in five investors said this
was the main role of savings.
• While negative rates continue to plague Germany savers, investors may continue allocating
their wealth to gold and property, rather than see it eroded.
7. German Retail Investors See Wealth
Protection As Key Role Of Gold, Savings
And Real Estate-I
• These findings are supported by the results of a study commissioned by Reisebank,
which found that ‘value preservation’ and ‘protection against inflation’ were two of the key
reasons cited by German investors for wanting to hold on to the gold investments they’ve
made in the last two years.
• But, rather than just ‘holding on to’ their current gold holdings, German investors have
indicated that they are willing to buy more.
• Our most recent German survey, conducted in November last year, revealed that of those
retail investors who had bought gold in the past, 40% said they were likely to buy more
over the subsequent 12 months as a direct result of the coronavirus pandemic.
• Interestingly, that intention to invest was strongest among Gen Z and Millennial investors,
which also tallies with Reisebank’s findings that more young adults (18-26 yrs) bought
gold during the pandemic than older respondents (23% v 16%).
• Whether or not escalating inflation in Germany is purely a temporary phenomenon, it
seems unarguable that it is preying on investors’ minds.
• And that tends to go hand in hand with maintaining gold’s appeal.
• While 2020 set a very high bar that may prove challenging to repeat, German investment
is likely to stay elevated for at least the remainder of this year.
8. Gold Price Analysis: Three Factors To Drive
XAU/USD Higher – DBS Bank
• Gold has broken out of the downward trend since April 2021 and is
on the way to retest the previous high.
• Factors that could drive gold prices higher include:
• 1) Negative real yields
• 2) Recovery in utility demand and
• 3) Gold remains a good hedge in uncertain times and provides a
good alternative to diversify asset portfolio, analysts at DBS Bank
report.
9. Diverse Users For Gold; Expect Demand To Pick Up
• “Gold has diverse uses, in jewellery, technology, by central banks
and as a form of investment.
• We expect demand from these three segments to pick up in 2021
given the economic recovery and rising income which is often
associated with higher demand for jewellery, technology, and long-
term savings.
• The three segments combined represent more than 90% of total
gold demand.”
10. Gold Is Still A Good Hedge In Uncertain Times Despite
Forecast Downgrade
• “We revised down the year-end 2021 gold forecast to $2,000/oz, in
view of the higher bond yield forecast and the delayed timing for the
peaking of USD by one quarter.
• Despite the downward revision in gold, the yellow metal remains a
good hedge in uncertain times, and is a good diversification strategy
to reduce asset volatility.”
11. Uptrend At $1844 Is The Next Stop On The
Downside
• “Gold’s high of $1916.91 has not been confirmed by the daily RSI and in fact,
yesterday’s price action constituted a key day reversal.”
• “We look for a correction lower to take hold and would allow for some slippage back
to $1844, the short-term uptrend and the 200-day ma at $1842.”
• “The 55-day ma at $1794 is expected to be the maximum downside we see and we
then look for resumption of the long-term uptrend.”
• “Longer-term, we target the $1959/65 November 2020 high and the 2021 high.
• These guard the 1989/78.6% retracement and the 2072 2020 peak. Longer-term,
we believe that this will also be overcome.”
12. Basel III And Gold - Central Bankers
Locking The Fire Exits
• The Basel III rules on unallocated gold will require bullion banks to hold more High Quality
Liquid Assets (HQLA) for longer periods of time to offset loans to their clients.
• It follows that for example gold miners who finance themselves with a gold loan (most do)
will find it more difficult to secure funding and it will be more expensive to finance
rendering many projects uneconomic or simply difficult to fund.
• Industrials such as jewellery fabricators, physical gold stockist and precious metals
refineries who also lease metal will find those markets thinner and far, far more expensive.
• Shortages of physical will become a frequent occurrence, especially when you most want
it as pipelines shrink. We don’t yet know for sure, but borrowing costs could likely double
or treble.
• These sectors are very low margin, high cost businesses who are highly sensitive to cost
increases and they will respond by keeping physical stocks of borrowed metal to an
absolute minimum. Some will simply shut up shop.
• The outcome of the proposed rules is less about the existential issues around the
professional market and actually about the broader sector becoming far smaller, less
efficient and by extension far more expensive… and that’s what I believe the BIS wants to
achieve.
• It is my belief the regulators are deliberately locking the fire exits in the theatre and simply
looking to make gold less relevant.
13. Basel III And Gold - Central Bankers
Locking The Fire Exits-I
• Bullion banks under Basel III will in future have to set aside more HQLA in order
provide unallocated metal, to oil the wheels of trade, especially around trade
settlements.
• Bullion desks will approach their treasury colleagues for say US treasuries with a 13
month tenure (a HQLA needs to be over a year in tenure) to offset say a rolling 3
month gold lease to a jewellery fabricator and now be expected to pay handsomely for
that funding as costs rise and this is the important bit they will be passed onto
clients.
• Without this consignment facility whatsoever the jewellery fabricator could find it
difficult to hedge his risk or indeed the price swings in underlying metal prices could
render him insolvent - on thin margins they might simply elect just shut up shop.
• Compromising the services that bullion banks provide will make being in gold less
attractive right through the value chain it would be reducing the lubricant from the
machine.
• Unallocated gold has been necessary because, without it, physical bars will need to
move between vaults and across borders to settle trades each day.
14. SPDR Gold Trust Holdings Rise To 1,045
Tons
• SPDR Gold Trust, the world's largest gold-backed
exchange-traded fund, said its holdings grew by 0.3
percent, at 1,045.83 tons on Tuesday from 1,043.21
tons on Friday.
• In terms of ounces, holdings increased to 33,624,491
from 33,540,224.
15. Will Gold Etfs Keep Soaring After An
Impressive May?
• The yellow metal has pleased investors in May, with around a 7.7%
rise in prices.
• Notably, the bullion is moving toward its best monthly gain since July
2020.
• Majority of the market analysts are of the opinion that growing
concerns surrounding rising U.S. inflation levels, weaker U.S. dollar
and lower bond yields have been behind the upside in bullion prices.
• In this regard, Stephen Innes, managing partner at SPI Asset
Management, has said that “Gold is pretty much drawing its strength
from inflation fears and some inclination of the yields,” per a Reuters
article.
• He has also said that “The dollar is staying weaker, that’s fairly
supportive. Gold bulls now have their eyes set on $2,000 and most
are thinking it’s going to go quite higher.”
16. Gold Etfs To Consider
• Some analysts believe the Fed’s measures to provide support
to the ailing economy seem to be supportive of investments in
gold and treasuries.
• Moreover, interest-rate cuts are lowering the opportunity costs
of investing in non-yielding bullion.
17. Gold Turns Positive On Tumbling Bonds, Global Inflation
Fears
• Gold futures turned positive in the middle of the trading week,
buoyed by sliding bonds and a seemingly declining greenback.
• Gold prices have remained above the crucial $1,900 level
after coming off a 6% monthly gain.
• Can gold maintain the momentum? It might depend on this
week’s jobs numbers and next week’s inflation readings.
• July gold futures rose $0.40, or 0.05%, to $1,904.40 per
ounce at 12:15 GMT on Wednesday on the COMEX division of
the New York Mercantile Exchange.
• Gold prices are up a tepid 0.14% year-to-date.
18. Gold Turns Positive On Tumbling Bonds,
Global Inflation Fears-I
• Silver, the sister commodity to gold, is slumping midweek as it
has fallen below $28.
• August silver futures tumbled $0.122, or 0.43%, to $27.98 an
ounce.
• The white metal is trying to also turn positive on Wednesday
and build upon its 5% boost in May.
• The US bond market was mostly in the red, with the
benchmark ten-year yield down 0.01% to 1.605%.
• The one-year bill edged up 0.003% to 0.046%, while the 30-
year bond dropped 0.014% to 2.282%.
• Weaker Treasurys are beneficial for non-yielding bullion since
it reduces the opportunity cost.
19. Gold Turns Positive On Tumbling Bonds,
Global Inflation Fears-II
• The US dollar is up in the early trading session, but it is
beginning to pare its gains.
• The US Dollar Index (DXY), which measures the greenback
against a basket of currencies, rose 0.31% to 90.11, from
an opening of 89.92.
• A lower buck is good for commodities priced in dollars
because it makes it cheaper for foreign investors to
purchase.
