'they', the phucking puck @sswipes, want us to believe that gold is going up because of idle Chinese shopping on top of recovery of Indian wedding tallies, and both are somehow tied in the convolution that is Covid
... but, yes, I remain agnostic, just less so today than yesterday day
bloomberg.com
How China’s Covid-Zero Policy Is Giving a Polish to Gold
With travel out of the question for Chinese consumers and Covid curbs only just being lifted on big Indian weddings, jewelry-buying is back in a big way.
David Fickling
18 February 2022, 06:30 GMT+8
After travel, is gold the next best thing?
Photographer: Qilai Shen/BloombergGold isn’t behaving quite as you’d expect right now.
U.S. interest rates have risen by half a percentage point so far this year, as measured by the yield on 10-year government debt. That’s typically bad news for precious metal. About two-fifths of gold demand comes from private investors and central banks who regard it as a safe place to park their savings. When interest rates are close to or below zero, as they have been across the world for much of the past two years, no one is very worried that you don’t get a dividend, coupon or interest payment from your investments in coins and bars. When things start to tighten, however, people shift their funds into assets that get a better return.
That doesn’t seem to be happening, however. The yellow metal has mostly traded sideways since the start of the year, and a typical negative correlation between the two assets — where higher Treasury yields beget lower gold prices, and vice versa — has disappeared altogether. Geopolitical tensions around Ukraine might be part of the explanation, but a look at the somnolent levels of volatility in Chicago-traded commodity options suggests traders aren’t paying that much attention to the news at present.
Switching SidesThe normal negative correlation between U.S. 10-year Treasury yields and gold prices has flipped
Source: Bloomberg
Note: Figures close to 1 or -1 indicate strong correlations.
Here’s an alternative hypothesis: Metal is being propped up by the spending habits of Asian consumers.
Indian jewelry buyers nearly doubled their purchases last year to 611 metric tons, according to the World Gold Council. In mainland China, consumption jumped 63% to 675 tons. The 556 tons of extra trinkets bought in those two countries alone was enough in 2021 to offset almost all of the 558 ton decline in net consumption from private investors and central banks, driven by the fastest sell off from exchange-traded funds in eight years.
It’s far from obvious that this rise in demand has played out. Many of the things that Chinese consumers used to buy are off the table at present. They spent $255 billion on foreign travel in 2019, but the country’s Covid-zero policies meant that outbound tourist numbers last year ran at about a quarter of those levels. The vast majority in the region don’t expect things to return to normal until 2024 or later.
Glittering PrizesDemand from jewelry buyers helped offset the sell-off by gold ETFs last year
Source: Bloomberg
Note: Shows change in demand between 2020 and 2021.
While retail sales last year grew at their fastest rate since 2013, they still haven’t returned to their pre-Covid trend, either, despite the fact that the gap between the disposable income and consumption spending of urban households continues to widen. Stock markets remain confident that this parsimony will eventually give way to extravagance. The forward valuations of pricey liquor-maker Kweichow Moutai Co. and Chow Tai Fook Jewellery Group Ltd., a Hong Kong retailer with thousands of mainland outlets, remain at elevated levels, suggesting investors see little prospect of a decline in earnings.
The picture isn’t all that different in India, despite a less aggressive campaign to crack down on Covid. Gold imports more than doubled last year as weddings and celebrations put on hold by the pandemic started to return in droves. A longstanding rule of thumb that Indian gold demand slumps whenever the price rises above about 30,000 rupees per 10 grams seems to be well and truly dead. After two years well in excess of those levels, per-capita gold demand last year was running at its highest level since 2017.
New NormalBullion traded in Mumbai used to treat 30,000 rupees as a price ceiling. No more.
Source: Bloomberg
All of that is likely to make the direction of gold even harder to predict in the future than it normally would be. The most price-sensitive gold players — private investors in bars, coins and ETFs — have been retreating from the market in recent years, with last year’s net purchases their lowest since 2015. In their place are a growing army of jewelry-buyers who aren’t making a sober calculation of their returns, but are driven instead by motivations not easily caught in economic statistics: optimism, confidence, even love. That’s likely to put a floor under demand, and prices, for some time to come.
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Mild Omicron and an Aggressive Fed May Hurt Gold: Liam DenningThe Crypto-Is-Gold Crowd Is Asking the Wrong Questions: Jared DillianGold's Bad Vaccine Year May Contain a Troubling Message: John AuthersWant more Bloomberg Opinion? Terminal readers head to OPIN <GO>. Web readers click here.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
David Fickling at dfickling@bloomberg.net
To contact the editor responsible for this story:
Ruth Pollard at rpollard2@bloomberg.net |
