Gold news

 [Music] [Music] I'm Charlotte McLoud with invest.com and here today with me is M Propel Global head of institutional markets at ABC Refinery thank you so much for being here great to have you shot really good to be speaking with you and we're going to go into the gold market today where I thought we could start we're going to look at some of the main drivers that you see coming in 2024 and I thought we could start with the FED because a lot of people are watching very closely it seems like at this point people have

adjusted their expectations for what we're going to see in terms of rate Cuts this year so I wanted to hear from you on on what you see coming how you're looking at that yeah look basically the way it seems the market has you know been quite sort of if you're like opposed to the fed or maybe misreading the seriousness of the fed's intention to drive in inflation lower um and so this sort of like argument about higher for longer has really preceded for the last year or so I think

20124 as things stand at the moment um and given the where the fed's preferred inflation measure PC is coming in and the sort of dialogue from the FED fed speaker if you want to call it that I think that uh we should expect um somewhat higher for longer and that sort of dialogue actually isn't unique to the FED it's coming out of a couple of the other uh central banks as well um so I expect um higher rates to persist and as you said the markets changed quite rapidly in terms of uh what it thought

say in December in January and early Feb so um the idea REM March cut pretty much out of the question in terms of what Futures are pricing um I think in May the thought of a 25 basis point cut has come from being about a 60% probability 65% probability it's come down about 22% probability and then if you look through to January of next year and just see where the of the the mark of my land there ter the the FED funds is I think it's like roughly 50 or so basis points higher than where people thought it was

it's still declining it's still going down but that point of decline I think it was priced in at about 3.7 is the general aret consensus and it's now about uh 4.2 I think from memory so that's a really big change think half % difference in people's estimation of where the FED funds will land in in in 10 or 11 months time well in talking about these changing expectations I think people have watched the FED do this Balancing Act where it tries to tame inflation without harming the

economy too much and it seems like so far it's done a better job than people were expecting so do you think we'll achieve that soft Landing that the FED is trying to get they said to have done a pretty good job uh so I'm inclined to say yes um the there are some data points that have come out that have been a little bit weak and uh end of last week I think uh us PMI was um a little bit of a mess uh umich consumer sentiment was a bit of a less um those are the two that come to mind but of all the data points and the

sequences of the time series The Fed would look at those are two so far and going back to last week's um PC inflation they came sort of pretty much bang on so so I look one thing which we might touch upon I guess is that there's so many events that are completely outside the fed's control and completely outside our control those things could intervene and provide shocks to the economy that you know we can't know think if you look in 2024 does look so like so far so good which is not at all

what you know a lot of people are pretty pessimist about that I'm neutral to mildly optimistic very and continuing on in terms of golden price drivers another one is dollar so I thought maybe we could take a quick look at Dollar expectations for this coming year sure um look I mean looking at the dollar in terms of just like broad trade weight to Dollar at dxy I'm moderately positive about the dollar which obviously implies a headwind for gold um but there are other Tailwinds as well um think that's for a

couple of reasons partly because I think us growth will continue to be fairly good um I'm relatively positive about us growth through um early 20 well through 24 and I expect that will attract people into US assets and it'll be good for the Dollar on a Sly sort of technical lend um I think that the dollar cycle about roughly 39 month cycle I think that might have bottomed out earlier this year maybe 6 to8 weeks ago and that would provide a bit of a Tailwind for the dollar as well just I mean to

painting with a really broad brush but it's has held reasonably well for the last sort of several cycles and that's a sort of a a a slight positive now many very credible uh observers have looked at the dollar and they've estimated for example Vanguard estimate the dollar is about 10 12% overvalued compared to It is Well con compared to in a basket of five and I think that could be absolutely right I'm not going to argue with that at all but what I would say is is that currencies can be overvalued or

undervalued quite significantly and carry on that way for a long time and you just have to look at the Japanese Yen I the consensus is the yen is incredibly undervalued but it's been on a tear well it's down on the downside it's been a um a real weakening Trend since what March 21 so for the last three years and people including me talk about hoping and expecting for a a Yan rally at some point in this year but I think it's fair to say with apart from a few shortterm things have all been

brutally disappointed so I think that whilst the dollar might there might be a good economic case to say yeah overvalued that doesn't mean it's going to turn tomorrow so 24 expects strength uh not huge strength but in dollar Index terms say 109 108 109 possibly possibly pushing on to 114 not making any really big predictions there but that's where I see it so possibly possibly a little bit of a headwind there for gold but also on the other hand we've seen central banks providing such strong support for bold

over the last couple of years with the extensive buying so I thought we could talk a little bit about that in 2024 as well of course there is a divide between which central banks are actually buying and which ones are not so your thoughts on 2024 well take it in aggregate I think 24 we see a continuation of Central Bank demand V is a really good demand um I think that it's a uh gold such a good liquid portfolio diversification thing not just for individuals but also for central banks and if you look at um I guess the

drivers you know they they're they're very few central banks that I think would be considered overweight in Gold I think plenty would look at it as a um you know rather than accumulating foreign exchange reserves in other people's bonds which they might say look depending on how the Outlook goes might prove to bu be too volatile or it might prove um yeah they've done enough of them so that onward drive to diversify into gold uh oh Caren buy gold I think it's still there and I'm I would not be

surprised to see a repeat of the last two years um sort of you know numbers and tonnage terms okay so those are those are a few of the main yes that's the positive one yes yes good to sum it up and so those are a few of the main price drivers that people tend to think of when it comes to Gold but are there any others that you are watching right now the big one I would always watch and it's not always it it's pretty reliable pretty robust and that is looking at real interest rates and generally the

way that we sort of find a propy for that because true real interest rates or neutral rate of interest might not be you you know they basically um s confusing two sort of two concepts there but the usually I look at it via the US uh treasury inflation protected bond yield um nothing's perfect but that's not a bad guide and it it's got a fairly good um kind of like explanatory uh factor for the price for the gold price now real yields you know moved significantly higher in the last year or

so and I think that the effects of that largely offset by really good Chinese buying and really good Central Bank buying um I don't expect a huge change in real yields um this year in other words I don't expect significant upside um I expect it to be somewhat rangy so I think could play either way for gold um the things that might happen that might be um kind of raise real yields is if you get um you know Chinese CH the Chinese economy is going through um by noticeable deflation and they're uh

exporting um you the their Trade Surplus still very big so if that sort of deflationary push kind of works its way into the general wider global economy then that might depending on how Financial conditions are in the west that might raise real interest rates a little bit uh well you know real rates I'm it's it's kind of hard to say but I mean that's that if you're looking at the one single other thing that I look at the real rates is the thing okay very important and of course we talk about

all these factors for Bo in order to hopefully look at what the price is going to do in 2024 and I know you've got a couple of price targets that I thought we could go over because I think that'll be interesting for sure um so um obviously you know looking at it technically we look at a variety of different time frames and I guess you should work sort of big frame back to smaller frame and the Big Frame looking at where these TGs come from is um daily point and figure charts so the two big

standup Targets in the upside for me in US dollar terms are 2360 and 2580 so given that you know you can kind of you can have a Target but like there's no idea of when trying to put some kind of context on a possible when is uh I look at the options market and I try to say okay what are those strikes um looking like in terms of the option Delta because in reverse that gives you an idea of what the Market's pricing in terms of probability so looked at the looked at that um again yesterday just

as a quick sanity check and if I've remembered more or less correctly because it was in a busy times um I think it was um looking at it for the nemon expiration which takes us really to the takes us to December um I think for 2360 that Target is roughly think it was like roughly well don't want to go strong like let's say one in four or thereabouts right um and then for one year it's um it's it's it's higher it's you know one in three something I'm I'm trying to remember this scun on the fly

so you know someone checking your price now might say oh well not by there you know so it's better than that um 2580 is obviously a much lower probability outcome um more likely some of the one in8 so that's a pretty low probability event but it kind of gives you an idea where the market is pricing in group terms what those outcome up so then moving to a slightly smaller time frame uh I got a Target 280 sorry 2182 um which is obviously way way you know that's kind of in sight really

where levels we are now what 100 bucks away there thereout so for the line for 6 months that's like 42% probability for 9 months it's about 1 and two so that's not bad that's that gives you some sense of where those doets are and uh just kind of how remote or or not they are okay yeah no I appreciate the detail on on how you came to those conclusions it's very interesting and I think I have to no not too detailed no I think it's just the right amount of detail that was very good I think maybe one thing so

we've gone through you know what it's looking like for gold is there anything that can throw gold I mean you've talked about some of the head waves for gold but is there anything that can substantially really throw gold off of its you know upwater halfway and yeah look I think you if if if dollars in terms of Tailwind sorry headwinds if if the US dollar were to sort of really go on a tear which I don't expect but if it was to um obviously that's that's important if um the I don't know whether this should

be a 24 problem but you know a lot of people do think it's a it's a problem Somewhere Out There 25 26 whatever uh the US government does have a an enormous amount of debt issuance to get through and that's not sh in that that's not something that's going to go go away because neither party seems to have a really good grip on either the fiscal side or tax raising side or or both so um US government has to go to the market with a lot of Treasury sales um if the market at some point thinks you know

what we need a higher interest rate a higher yield to incentivize us to buy those bu those bonds especially when you look at it in the context of the fen the FED uh enterings of QT and kind of running off those th that that those Bonds on their uh balance sheet they got to find other people to buy buy those bonds if there was a change in Psychology around that and the market got much more kind of ansy about financing um that that deficit and you saw a real Shar increase in yields um that that would be a problem the other

thing that I think is a lurking issue is just how much um kind of distress debt there is which we're all kind of aware of you the the distress at and Commercial Real Estate and so on if that came to something that um that's more likely of course to be a positive for gold as a sort of you know flight to Quality thing in the short term there might be quite disruptive because people actually drive for cash first so you might actually see counterintuitively gold might didn't and draw in the first stages it it did that

in the GFC because people ran for cash before anything else and then once they to reassess they were like hey more gold allocations okay and I asked that part I think it's good to look at both sides of the equation and I ask it partially because I know that some people look at the gold market and they worry about manipulation in terms of the price and I want to bring that up one of my colleagues for context for our audience and told me you have a very concise way of explaining kind of what's going on there so I won't

make you go into too much detail I don't want to spend too much time on this but just your thoughts there briefly yeah sure I mean look I know that for some of uh the um listeners and S this is a really really contentious topic so what's going on you know when funds and investors go to the Futures Market to to buy gold um they have to find a seller there's you know always a seller for every buyer and depending on timing there may be a variety of categories of seller but usually it's going to be some

kind of Bank some kind of trading house that r that stands by as a liquidity provider in that market so the investor buys uh could it's a hedge fund or rece ta they buy gold um someone goes short against that now if it's a bank that has to sort of manage their risk position Bank isn't just going to say hey we'll sell you sell you millions of outs of gold as you go in buying they're hedging that as they go through it now they might hedge somebody on Futures they might hedge uh some at Loco London the

point is they're going to end up with a balanced book crucially um outside observers can only see the future short they can't see the inventory long so they don't have visibility over both legs of that trade they don't realize actually there's there's a long uh you know in the background that offsets the bank's risk to being short so the question is is why why would a bank why would a trading house do that and the reality is is that a you providing liquidity but more importantly as far as

your um the CTA remains uh long of gold and you remain short of gold the Futures curve for precious being in a contango it's a rising curve as you roll your positions forward and of course the CT have to roll forward they don't want to take physical delivery it's not what they're mandated to do they roll forward in from one active month to another and as you're on the other side of that and you take that role you actually get paid like a sort of an extra Total return for that it's not necessarily big and it's

not not necessarily permanent but that is the if you like the economic or the market incentive to have like a short Futures position uh out there against bounced against long in tro position so there's like you know it's it's there's a there's always like a market incentive as to why things happen that's the incentive there but the crucial thing for people will understand is that that um short position in the Futures Market you can see that you what you can't see is the fact that there's inventory or

vault or local London uh on the other side because for sure you know what no one is going to be happy betting millions of ounces in an outright uh position against ctas um that's not where that's that's that's where things going to go go wrong so I hope that I hope that's concise and hope it gives some very good that's that's exactly what I was hoping for so thank you for going to that I think we'll wrap it up here for now we would love to have you back to have a longer conversation about

what's going on because I feel like we just scratched the surface but for today thank you so much for coming by I think this is a great introduction to yourself and what's going on with gold no thanks Charlotte I really appreciate it thank you and once again I'm Charlotte loud with investing.com and this is Nick forel with ABC refinery [Music]