Gold rose after a report released last Wednesday showed that inflation in the US in October was higher than expected. This surprised investors and analysts. The 15-month trend of prevailing depreciation of the precious metal was interrupted and the mechanism of “asylum assets” against inflation was activated, according to the British magazine The Economist. Or, in the slightest turmoil in the markets, to look for “lifelines”, such as gold and the dollar, and more recently, according to many observers, cryptocurrencies, at the expense of some acacias, especially the rapidly rising technology companies, listed on the Wall Street Nasdaq in New York.
Prices of consumer goods and services increased by 0.9% compared to a month earlier, while forecasts were for an average increase of 0.6%. At the same time, data from the US Department of Labor showed that October inflation rose by 6.2% on an annual basis, to a 31-year record (since November 1990). The increase was expected to accelerate to 5.8 percent, after an annual inflation of 5.4 percent a month earlier. As soon as these figures were announced, the stock price of the precious metal on the London Metal Exchange (LME) rose by almost 1% to $ 1,845 an ounce.
A day later, on Thursday night, the price of gold increased its growth amid growing demand for this asset as a hedge against inflation. Trading closed at $ 1,865 an ounce.
Many analysts responded immediately by saying that if the price stays around $ 1,850 an ounce and next week, a new influx of investors will emerge, as a result of which the next target could be the level of $ 1,900 an ounce of gold.
Concerns about inflation and the role of central banks
Concerns about rising inflation also rose because of China, where the consumer price index rose 1.5 percent in October from a year earlier, up from 0.7 percent last September, the strongest growth since September 2020. Thus, the attack on the precious metal came from Asia, which increased the panic and market participants rushed to buy asylum assets.
In fact, the panic is not because of the rise in gold prices, but because of accelerating inflation, as US and eurozone central banks (the European Central Bank) have consistently assured in recent months that rising consumer prices are temporary and inflation has long been has exceeded the targets of both the Fed (2.2%) and the ECB (2%).
The upward trend of the precious metal continued until the end of last week, slowing its growth on Friday, and on Monday even fell slightly at the beginning of trading. In the end, the final on the first working day of the new week returned to levels of over 1860 dollars per troy ounce.
The forecast
The sharp jump in the price of gold prompted analysts at one of the largest US banks, Citigroup, to raise their forecast for the price of gold in the fourth quarter. In their new forecast, they forecast an average gold price of $ 1,800 for the remaining three months of this year, instead of $ 1,700 an ounce, as previously assumed five months ago.
In addition, in Citigroup’s new forecast for the dynamics of gold prices, experts from one of the largest financial conglomerates in the world said that now this precious metal will tend to the level of 1900 dollars if its quotations remain close to the limit of 1850 dollars. at the end of this week. As the main barrier to this growth, Citi puts the faster than expected rise in the key interest rate from the US Federal Reserve (Fed – US Federal Reserve). So far, there are no signs of change from the Fed, most likely interest rates will be raised for the first time in June 2022.
That’s why Citigroup analysts point out that the growth in demand for gold is mainly due to fears of further acceleration of inflation. They believe that the demand for this precious metal will increase even more next year. According to them, historically, gold tends to perform very well in an inflationary environment, so the logic suggests that the market will adjust bullish (Taurus is a market player who believes that the price of the financial instrument will rise), if inflation continues to rise or even stay at the current high level.
There were similar sharp jumps in the price of gold in 2020
recalls the Financial Times. At the beginning of last year, the stock price of gold rose by as much as 17% to 2,089 dollars (a five-year high on February 8), before falling the next day to less than $ 2,000 an ounce. At that time, however, the rise was associated with a decrease in physical supply with increasing industrial use, ie due to a market deficit or a traditional market situation.
And another aggravating factor, according to observers. Last year, to help economies cope with the viral pandemic, banks began to take emergency measures, effectively pouring free money into markets and actually pumping up inflation artificially. “Their large-scale interventions to counter the effects of the pandemic, which many enjoy, will in the long run create problems for economies as a whole if a sharp and lasting economic recovery does not materialize quickly,” warned Mohamed El-Erian, Allianz’s chief economic adviser. recalls the Financial Times.
Historically, with any foreign policy crisis or terrorist attack, the price of gold rises immediately because demand rises sharply. Yellow metal rose immediately after the attacks of September 11, 2001 in New York and on the eve of the two wars in the Persian Gulf, recalled by the American bank Goldman Sachs.
The demand for gold is constantly growing
Global sales of gold exported from all countries amounted to $ 395 billion in 2020, according to final data from the World Gold Council (WGC) and the World Trade Organization (WTO), growing by an average of 20.8% since 2016, when global gold shipments were valued at $ 326.9 billion. In just one year – from 2019 to 2020, the value of export gold has increased by 29%.
The five largest exporters of gold are Switzerland ($ 71.7 billion), Hong Kong ($ 41.3 billion), the United Arab Emirates ($ 26.4 billion), the United Kingdom ($ 21.4 billion), and the United States ($ 20.6 billion). and they owe 45.9% of world gold exports. In this unofficial ranking, Bulgaria ranks 96th ($ 29.2 million).
On continents, Asian exporters are ahead of Europe, offering $ 146.2 billion worth of gold on international markets, or 37% of the world’s total. At the same time, European exporters generated 34.2% of gold exports, 10.1% came from North America and 7.7% came from Africa. Yellow metal suppliers from Latin America, excluding Mexico but including the Caribbean, provided 5.9%, and from Oceania 5.1%, led by Australia and Papua New Guinea.
The largest gold exporters in Europe are Russia ($ 18.5 billion), followed by Germany ($ 8.7 billion), Italy ($ 6.7 billion), Turkey ($ 2 8 billion), and Belgium ($ 1.6 billion). ), Austria ($ 1.5 billion), France ($ 1.4 billion). In the Balkans before Bulgaria ($ 29.2 million) are Croatia ($ 75.7 million), Slovenia ($ 32.9 million) and Greece ($ 30.9 million).
Demand is also growing
Total gold imports worldwide amounted to $ 375 billion in 2020, an average increase of 26.7% for all importing countries since 2016, with total gold imports estimated at $ 295.9 billion. On an annual basis, the value of imported gold increased by 12.3% from 2019 to 2020, according to summary data from the WGC and WTO.
The five largest importers of gold in the world are the United Kingdom, Switzerland, the United States, Turkey, India, which bought more than two thirds (68.8%) of global exports of the yellow precious metal.
By continent, European countries bought the most gold in 2020 at $ 202 billion, or 53.9% of the world’s total gold exports. In second place are Asian importers with 32%. It is followed by North America with 11.6%. With smaller shares are (1.7%), Africa (0.7%) and Latin America (0.1%), excluding Mexico but including the Caribbean.
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