Gold sees selling pressure on rallies last week

Published on May 08, 2023 12:24

COMEX Gold jumped near $2085 per ounce last week with the break above $2000 per ounce mark getting a further boost on hopes that the US Fed might be heading towards a pause in its interest rate hike campaign that has pushed the borrowing costs near highest in one and half decades. The yellow metal also tracked continued worries on the US debt front. If the US government`s legal borrowing limit of $31.4 trillion is not raised or suspended in the next few weeks, it could lead to a wide scaled panic and Gold buyers seem to be already willing to push up the prices of the yellow metal as a safe haven. The US dollar index slumped under 101 mark this week and the overall trend in the dollar looks tepid. However, Gold continues to see selling pressure on rallies and ended the week just above $2020 per ounce.

Meanwhile, the rapid surge in Gold over last few months is taking a toll on demand now. The World Gold Council or WGC stated in its latest Gold Demand Trends update for March quarter of 2023 that continued momentum in central bank buying and resurgent Chinese consumer demand contrasted with a negative contribution from ETFs and weakness in India for Gold demand. The Q1 global gold demand (excluding OTC) was 13% lower y/y at 1,081 tonnes (t). Inclusive of OTC, total gold demand strengthened 1% y/y to 1,174t as a recovery in OTC investment - consistent with investor positioning in the futures market - offset weakness in some areas.

Demand from central banks experienced significant growth during the quarter though. Official sector institutions remained keen and committed buyers of gold, adding 228t to global reserves. Bar and coin investment gained 5% y/y to 302t, concealing some large regional variations. In contrast, net negative demand for ETFs, although modest at -29t, generated a hefty y/y decline compared with the sizable inflows seen in Q1`22.

Global jewellery consumption was virtually flat at 478t. Jewellery fabrication exceeded consumption as stock building added just over 30t to global inventories. Gold use in the technology sector continued to suffer from the challenging economic climate. Demand slumped to 70t - the second lowest quarter in our data series back to 2000. Modest growth in both mine production (+2%) and recycling (+5%) led to a marginal increase in Q1 total gold supply to 1,174t. The uptick in recycling was largely a function of higher gold prices. WGC noted that total global Gold supply rose 1% in Q1 due to record mine production and higher recycling. The Q1 mine production increased 2% y/y to a record level for the first quarter while Gold recycling volumes rose by 5% y/y as the gold price increased. Q1 saw a modest 8t added to the global hedge book owing to higher gold prices.