Chinese reports of rates cuts and stimulus are helping to lift commodities today and gold is riding that momentum to a $28 gain to $1982.
It's also getting help from the bond market as European yields tumble and US rates follow them lower. The market is quickly moving beyond worries about inflation and that will slowly result in the pricing in of rate cuts.
In the bigger context, sovereign buying of gold is a major tailwind as Russia and other BRICS countries look to diversify away from US dollar holdings.
Technically, the $1985 level offers some minor resistance here while $2000 will offer a heavier dose. The 55-dma is on the brink of crossing below the 100-dma in what would be a bearish development.
Today in a report, Citi made the case for buying large-cap gold miners.
“Gold equities have underperformed the underlying year-to-date, which is somewhat hard to explain given that cost inflation appears to have peaked,” he said. “Gold is up 7 per cent, with Newmont down 28 per cent, Barrick down 9 per cent and Agnico down 1 per cent. The stocks are now trailing gold on a 5-year view.
“Gold equities often offer positives vs the gold price: dividends, growth, and leverage. The biggest challenge is cost inflation, which can eat into margins. The stocks underperformed in 2022 as gold prices fell and costs increased by $100-150 per ounce. But 2023 was expected to be different with both NEM and GOLD guiding costs roughly flat.”
For the commodity itself, Citi sees an opportunity to buy in late Q3 or early Q4 on falling US inflation with prices potentially rising to $2100 or $2200 in the first half of 2024.
