Gold Price Forecast: XAU/USD Down But Not Out On Looming Geopolitical Risks

Commodity

Economic

Summary:

Gold price bounces toward $2,350 after correcting on hot US CPI data. US Dollar retreats with US Treasury bond yields ahead of US PPI data, Fedspeak.

Gold price is reversing a part of the previous day’s losses, bouncing toward $2,350 in Asian trading on Thursday. Gold price finds its feet heading into another eventful US economic docket, with eyes on the Producer Price Index (PPI) data and speeches from US Federal Reserve (Fed) policymakers.

Geopolitical woes offset hot US CPI, as Gold buyers stay hopeful

The upswing in Gold price could be attributed to the latest leg down in the US Dollar alongside the US Treasury bond yields, as Asian stocks see a modest rebound amid hopes of more policy support from China after the country’s monthly Consumer Price Index (CPI) fell 1.0% in March, compared with a 0.5% decline expected.

The retreat in the US Dollar is also seen on the back of a USD/JPY correction, as the Japanese Yen attempts a recovery after some verbal intervention from Japan’s authorities. USD/JPY hit a fresh 34-year high at 153.24 on Thursday after the US Dollar rallied hard, tracking the upsurge in the US Treasury bond yields, capitalizing on hotter-than-expected US CPI inflation data.

The US CPI rose 0.4% MoM in March, higher than the estimates of 0.3%, according to data released by the Labor Department's Bureau of Labor Statistics on Wednesday. Monthly Core CPI also rose 0.4% in the same period, beating expectations of 0.3%. The annual headline CPI grew 3.5% against the market forecast of 3.4%.

Hot US CPI poured cold water on June Fed rate cuts, with markets now pricing in only an 18% chance of the Fed lowering rates in June, compared with a roughly 52% probability seen before the data release.

In the US CPI aftermath, Gold price corrected sharply to near $2,320 before staging a decent comeback to settle Wednesday at $2,334. Escalating geopolitical tensions in the Middle East helped the late rebound in Gold price while lending support to the safe-haven at the moment as well.

Citing people familiar with the intelligence, Bloomberg reported that “the US and its allies believe major missile or drone strikes by Iran or its proxies against military and government targets in Israel are imminent, in what would mark a significant widening of the six-month-old conflict.”

Looking ahead, Gold price could resume its upward trajectory on a sustained basis if the geopolitical tensions intensify, prompting investors to flock to safety in Gold price. However, risks to the Gold price rebound could emerge on the US PPI data releases and the European Central Bank (ECB) policy announcements. The ECB is widely expected to keep borrowing costs at a record high. The focus, however, will be on whether officials signal a rate cut in June.

A hawkish hold by the ECB, suggesting that the central bank could keep its policy tight for longer, could reinforce the selling interest around the Gold price. Higher interest rates reduce the appeal of holding non-yielding Gold.

Gold price technical analysis: Four-hour chart

As observed on the four-hour chart, Gold price is on track to challenge the record high of $2,365, as it recaptures the 21-Simple Moving Average (SMA) at $2,342.

The Relative Strength Index (RSI) is pointing north above the midline, near 59.00, indicating that there is a scope for further upside.

The immediate resistance is seen at the $2,350 psychological level on the way to all-time highs.

Further up, a fresh rally toward the $2,400 level cannot be ruled out.

If the Gold price correction regains traction, the static support at $2,330 will immediately rescue buyers.

Failure to defend the latter will reinforce sellers toward the April 4 high at $2,305, below which the April 5 low of $2,268 will be tested.

Source:FXStreet

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Cohen

Commodity

In Cameroon, the astonishing surge in the price of cocoa has Banyuy Elsie Kinyuy planning the next chapter of her life. In November, the 57-year-old high school tutor bought a 3-hectare (7.4-acre) parcel of land about 200 kilometers (124 miles) northwest from her home in Yaoundé, the capital. The cocoa trees she’s planted there should begin bearing fruit by the time she retires in three years.

Laying the groundwork for Kinyuy’s career switch hasn’t come cheap. The traditional chief who sold her the plot also collected a fee of three goats, 40 liters (10.5 gallons) of palm wine and a bag of salt to grant her permission to farm the cash crop.

Kinyuy reckons the investment will pay off: “If the price of cocoa keeps rising, the crop will give me more money than teaching.”

Her story, and others like it heard by Bloomberg, shows how an unprecedented surge in the price of the key ingredient in chocolate is luring farmers in some parts of Africa back to the bean. The lag between the time it takes to plant and harvest a cocoa tree means the incipient trend won’t yield an instant fix for strained global supplies, but it could ease the squeeze down the line.

In the top two world producers, Ivory Coast and Ghana, cocoa farmers receive a price set by the government to ensure income predictability. But growers in Cameroon and Nigeria are free to sell to the highest bidder. And domestic cocoa prices in the two countries have more than tripled from a year earlier, spurred by a global shortage. Cocoa’s Surge Is Drawing Africa’s Farmers Back To The Bean_1

Cocoa’s Surge Is Drawing Africa’s Farmers Back To The Bean_1

That’s what persuaded Jean-Marie Mbida Obam to hire two extra workers on his small farm in Cameroon and switch from growing plantains, groundnuts and cocoyams back to the cocoa he gave up on three years ago, when prices were lower. “I remember earning 1.5 million CFA francs ($2,458) from these crops at one moment, whereas cocoa could barely give me 600,000 francs to 700,000 francs,” says the 61-year-old father of five. “I am back and prepared to completely revive all of my plantation. The cocoa price now is very good.”

Double-digit production declines in the Ivory Coast and Ghana—which between them account for more than 50% of global supply—have led to the scramble for beans. Cocoa farmers in those countries have been beset by bad weather and a shortage of fertilizer. This has propelled prices on the New York futures exchange to $10,000 a ton, from below $3,000 this time last year. And production isn’t expected to rebound soon.

Cocoa arriving at Ivory Coast ports from the start of the main harvest in October through March amounted to 1.3 million tons, about a third lower than a year earlier. Ghana’s output in the current season will total between 422,500 tons and 425,000 tons, half the country’s initial forecast, according to people familiar with the matter.

Forecasts by the International Cocoa Organization see Nigeria’s output falling 4% in 2023-24, to 270,000 tons, and Cameroon’s crop increasing 3% to 300,000 tons. By the end of the decade, Cameroon aims to raise production to 600,000 tons, while Nigeria projects a total of 714,000 tons by 2030.

John Kalu, a regional leader of growers in Nigeria’s Abia state, says there was a “long” list of prospective cocoa farmers trying to get in on the good times. The government has committed to leasing new land to farmers, but he says details are still vague.

In the meantime, scarcity is forcing grinders to pay big premiums to secure enough beans and avoid plant closures. These spreads range from $400 a ton in Ecuador and Peru to $2,500 in Ivory Coast, according to top cocoa processor Guan Chong Bhd., though Ivory Coast is trying to end the practice. A shortage of beans has also forced plants in Ghana to shut intermittently since late last year.

Growers in South America are also keen to expand production to cash in on cocoa’s high price. Ecuador, the world’s third-biggest producer, is targeting 800,000 tons by 2030, from 454,000 tons in 2023. Brazil, the No. 6 producer, plans to double volume by the end of the decade from 220,000 tons.

All those expansion plans could be curbed by European Union rules set to come into force at the end of this year. The EU will require chocolate makers such as Ferrero Group, Nestlé and Marsto to prove that every bean they import to the continent didn’t contribute to deforestation somewhere else.

Those who already have access to farmland may therefore have a leg up. In Nigeria’s Ondo state, retired civil servant Toba Adenowuro, 60, and his brother Timilehin, 43, who sells bread, sugar and other household essentials at a street stall, inherited a 5-hectare plot from their father last year. They recall how their father struggled to turn a profit from his cocoa crop during times of low prices. “All along we knew the payment to our father was not commensurate with farm yields and the rising prices of the commodity,” Adenowuro says.

Now the brothers are nursing 60,000 hybrid seedlings they expect to boost yields to 850 kilograms a hectare, from 400kg at present. Adenowuro says: “We want to rejuvenate the farm and to take a bite of the rising cocoa prices.”

Source:Bloomberg

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FastBull Featured

Remarks of Officials

The Federal Reserve released the minutes of the latest Federal Open Market Committee (FOMC) meeting on April 10.

Futures and options markets implied that the path of the federal funds rate is expected to rise, suggesting lower expectations for rate cuts this year, mainly due to robust U.S. economic data and a slower-than-expected pace of disinflation.

Slower runoff would give the Committee more time to assess market conditions as the balance sheet continues to shrink. It would allow banks, and short-term funding markets more generally, additional time to adjust to the lower level of reserves, thus reducing the probability that money markets experience undue stress that could require an early end to runoff. The decision to slow the pace of runoff does not mean that the balance sheet will ultimately shrink by less than it would otherwise. Participants generally favored reducing the monthly pace of runoff by roughly half from the recent overall pace.

A few participants expected core non-housing services inflation to decline as the labor market continued to move into better balance and wage growth moderated further. The disinflationary pressure for core goods that had resulted from the receding of supply chain bottlenecks was likely to moderate. Increases in the labor force or better productivity growth were viewed by several participants as likely to support continued disinflation.

Economic growth was expected to slow this year compared to last year. A strong labor market and sustained wage growth could continue to support consumption growth.

Participants agreed that recent data have not strengthened their confidence in a sustained decline in inflation to 2%, and a high level of uncertainty remains.

Participants thought that the policy rate was likely at its peak for this tightening cycle, and it would be appropriate to move policy to a less restrictive stance at some point this year if the economy evolved broadly as they expected. However, given the strong economic activity and high inflation data in recent months, a rate cut would not be appropriate.

The risks to the achievement of maximum employment and price stability were moving into better balance, and it was important to weigh the risks of maintaining a restrictive stance for too long against the risks of easing policy too quickly. Participants agreed that current monetary policy remained well-positioned to respond to evolving economic conditions and risks to the outlook.

FOMC Meeting Minutes

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Samantha Luan

Economic

Central Bank

The European Central Bank is set to keep borrowing costs on hold for a fifth meeting while further readying the ground for cuts to begin in June.

The deposit rate will be kept at a record-high 4% on Thursday, according to an almost unanimous poll of economists by Bloomberg. Just one of the respondents predicts a quarter-point reduction.

While inflation has retreated to within sight of the 2% target, officials aren’t quite ready to start dialing back the unprecedented spate of rate hikes they enacted to tame prices. Officials right up to President Christine Lagarde have indicated that they’ll have more confidence — particularly over wage growth — by mid-year.

“The ECB has signaled that interest rates will very likely be cut in June and the latest inflation data should have reinforced this,” said Ulrich Kater, chief economist at DekaBank. “Beyond June, the uncertainty and the risks to the inflation outlook argue for caution and Lagarde may hold back with signals.” ECB to Hold With First Cut Locked In for June: Decision Guide_1

ECB to Hold With First Cut Locked In for June: Decision Guide_1

With monetary loosening already underway in neighboring Switzerland, the debate in the 20-nation euro zone has turned to how quickly rates will be lowered after June. Policymakers such as Greece’s Yannis Stournaras favor another cut in July, while others prefer to pause — at least until the following meeting, in September.

Another factor is the US, where the Federal Reserve is navigating sticky inflation and robust economic growth. That’s making officials cautious about easing prematurely and raising the prospect the ECB moves first. While not an issue in itself, prolonged divergence could rattle currency markets and shift consumer prices again.

What Bloomberg Economics Says...

“With wage growth cooling, corporate profit margins in check and a headline inflation undershoot creeping into view, the ECB will soon cut rates. But since the cost of being caught out by a resurgence of inflation would be high (a U-turn would seriously undermine credibility), it’s understandable that the Governing Council is being cautious.”

—Jamie Rush, chief European economist.

Lagarde will be quizzed about these and other issues when she addresses journalists at 2:45 p.m. in Frankfurt, 30 minutes after the ECB’s policy announcement.

Interest Rates

Expectations of a summer pivot by the ECB were stoked last week as an account of March’s policy meeting revealed that officials saw “the case for considering rate cuts was strengthening.” Thanks to “encouraging” progress on inflation, they also concluded that the date for a first move is “coming more clearly into view.”

Some refuse to rule out action this week, fretting about consumer-price growth dipping below 2% and the ECB falling behind the curve in removing the restriction on the economy.

But the majority backs June, by which point additional figures on inflation, wages, profits and productivity will be available. That timetable matches the views of economists and investors after markets slashed their rate-cut bets. ECB to Hold With First Cut Locked In for June: Decision Guide_2

ECB to Hold With First Cut Locked In for June: Decision Guide_2

The subsequent pace of easing is less clear, with Lagarde saying in March that officials can’t commit to reductions beyond the first and emphasizing their “data-dependent” approach.

The account of the last meeting described market expectations at the time as “broadly in line with macroeconomic fundamentals.” On March 6, investors predicted about 90 basis points of cuts in 2024.

Economic Backdrop

Euro-area inflation undershot last month, slowing to 2.4% from 2.6% in February. The core rate that excludes energy and food also moderated, to 2.9% from 3.1% — the lowest level since early 2022.

Some economists and policymakers see price gains easing to or even below 2% this summer — even as the ECB’s latest staff projections only see this happening in the latter half of 2025. ECB to Hold With First Cut Locked In for June: Decision Guide_3

ECB to Hold With First Cut Locked In for June: Decision Guide_3

Rising services prices, however, are what economists at Allianz have called “the fly in the ointment for the ECB.” Indeed, they’re growing at 4%, while labor costs are also advancing in excess of historical averages, even after the pace of negotiated-wage increase moderated in late 2023.

The bloc’s economy, on the other hand, has been flirting with a recession for more than a year. While the ECB predicts a gradual, consumption-led recovery and green shoots are even starting to appear in Germany — currently the region’s biggest laggard — a recent survey of bank lending unearthed plunging corporate demand.

ECB Vs. Fed

While markets put the likelihood of the ECB cutting in June at about 80%, they see a less than 20% chance of a Fed move that month.

Officials in Frankfurt, who’ve diverged from their US counterparts in the past, have repeatedly stressed their independence. Finland’s Olli Rehn has said the ECB “isn’t the Fed’s ‘13th Federal District.’”

A longer bout of loosening in Europe, though, without such action in the US would have implications, according to Mohamed El-Erian, the president of Queens’ College in Cambridge and a Bloomberg Opinion columnist.

The potential discrepancy between the pace of ECB and Fed easing “is having a huge impact on relative pricing between Europe and the US,” he said. “You do see that in the bond market, you see it in the currency market,” he said, adding that parity between the euro and the dollar “is a possibility.” ECB to Hold With First Cut Locked In for June: Decision Guide_4

ECB to Hold With First Cut Locked In for June: Decision Guide_4

Operational Framework

Lagarde may also be asked about the ECB’s new operational framework that officials unveiled a week after last month’s policy meeting.

The setup preserves the current system of steering rates while giving banks more of a say over how much liquidity they need to operate. Longer-term lending operations and a structural bond portfolio are also envisaged in the future — with policymakers differing over the parameters. ECB to Hold With First Cut Locked In for June: Decision Guide_5

ECB to Hold With First Cut Locked In for June: Decision Guide_5

Economists surveyed by Bloomberg expect these instruments to arrive in as little as 15 months — a lot sooner than officials anticipate.

Source：Bloomberg

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Alex

Economic

Central Bank

The Bank of Canada held its policy rate steady for a sixth consecutive meeting, as officials signaled they’re getting closer to rate cuts but still need more evidence of slowing inflation.

Policymakers led by Governor Tiff Macklem left the benchmark overnight rate unchanged at 5% on Wednesday. The hold was expected by markets and by economists in a Bloomberg survey.

“We are seeing what we need to see, but we need to see it for longer to be confident that progress toward price stability will be sustained,” Macklem said in his opening statement.

Economists surveyed by Bloomberg expect the bank will be in a position to cut at the bank’s June 5 decision. But traders in overnight swaps shifted their bets after a disappointing US inflation reading and the Bank of Canada’s statement. The odds of a 25-basis-point cut in June are now close to a coin flip, compared with over two-thirds on Tuesday. July is fully priced.

While officials say inflation is still “too high,” data since January have boosted their confidence that price pressures are gradually slowing.

Still, Macklem called further declines in core inflation “very recent” and said policymakers want to be “assured this is not just a temporary dip.”

Traders Pare Rate-Cut Odds As BOC Waits For More Inflation Data_1

The communications confirm that officials’ discussions have turned to debating at what point this year the easing cycle can begin. But that decision will hinge on the pattern of inflation in the coming months.

Asked by reporters whether the bank could cut borrowing costs as early as June, Macklem said: “Yes, it’s within the realm of possibilities,” but policymakers want to see more progress on cooling price pressures.

“Overall, the statement is in line with a central bank moving slowly towards lowering interest rates, and sustained downward momentum in core inflation within the next CPI print will be key in determining whether than process can start at the next meeting in June,” Andrew Grantham, an economist at Canadian Imperial Bank of Commerce, said in a report to investors.

Stephen Brown of Capital Economics said Macklem’s comment about needing to see inflation progress for “longer” may be interpreted in different ways. But the central bank seems open to a June rate cut if month-over-month changes in core prices remain muted over the next couple months, he said.

“The biggest risk to that view may be developments south of the border, with the bank unlikely to be in a big rush to cut interest rates – and risk a depreciation of the loonie – if the recent stronger US inflation data cause the Federal Reserve to start sounding more hawkish,” Brown said in a report to investors.

The Canadian dollar held losses after the release, trading near C$1.369 per US dollar, the lowest level since November. The yield on benchmark Canada two-year bonds rose after the US inflation data and was up about 15 basis points on the day at 4.341%

In the news conference, Macklem said the bank will take any movement in the loonie into account as they set rates.

In the accompanying monetary policy report, officials said they expect the economy to grow 1.5% in 2024, up from 0.8% previously. They also boosted their outlook for potential growth, and said they expect “moderate excess supply” to persist until the end of 2024.

Policymakers see inflation falling to 2.2% by the end of this year, a slightly faster deceleration than was previously expected, and officials continue to see inflation hitting the 2% target in 2025. For the second quarter of this year, officials estimate inflation will come in at 2.9%, largely held up by gasoline prices.

Traders Pare Rate-Cut Odds As BOC Waits For More Inflation Data_2

Officials also raised their estimate for the neutral rate — a theoretical level of borrowing costs that neither stimulates nor restricts the economy — by 25 basis points to a range of 2.25 to 3.25%. In the press conference, Macklem said the change doesn’t have “much of an influence on real-time monetary policy.”

Last month, members of the bank’s six-person governing council said they expect to be able to start cutting rates in 2024 as long as the economy and inflation evolve roughly in line with their forecasts. But there was little consensus about when or how officials would know it was time to start easing.

Policymakers boosted their first-quarter growth estimate to 2.8% annualized from 0.5%.

Source：Bloomberg

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Samantha Luan

Economic

The Bank of Korea is expected to keep its policy settings unchanged Friday, opting to continue its inflation fight in a steady manner as the nation undergoes a major political change and two of the bank’s board members prepare to exit.

All 23 economists polled by Bloomberg forecast the South Korean central bank will keep its benchmark rate at 3.5%, a decision that would underscore continued caution toward early policy pivots. The bank last hiked in January 2023 and has since kept the rate at a level it calls “restrictive” to tame inflation.

Inflation was among key topics on the minds of voters when they cast their ballots in Wednesday’s parliamentary election, which resulted in a major defeat for President Yoon Suk Yeol even though his government had launched a series of initiatives to suppress inflationary pressure, including incentives for retailers to cut grocery prices and a temporary freeze in public utility charges.

The BOK remains wary of the potential for inflation to flare up again. Last month, consumer prices rose 3.1%, exceeding expectations and staying well above the BOK target of 2%. Household debt is another concern keeping the monetary authorities cautious about signaling a policy pivot too soon.

“Keep calm and hold on,” Kim Sung-soo, an analyst at Investment & Securities, said in a note. “Inflation is showing the last mile is not easy.”

In a sign of waning market expectations for rate cuts, South Korea’s policy-sensitive three-year bond yield has risen about 24 basis points this year to 3.39%, closer to the BOK rate of 3.5%. Meanwhile, the swaps market is currently pricing in zero rate cuts in the next six months. Bank of Korea Set To Hold Interest Rates During Transition After Elections_1

Bank of Korea Set To Hold Interest Rates During Transition After Elections_1

Several factors are backing the case for the BOK to keep rates high. A continued rebound in exports and industrial production indicates the economy is doing fine even with the policy settings. South Korea’s output of semiconductors, central to industrial strength, jumped the most in 14 years in February, while exports of them reached the largest monthly total since 2022 last month.

Then there’s the currency. The South Korean won has weakened around 5.6% this year, joining declines in most global peers against the dollar after robust US data clouded expectations for a near-term rate cut by the Federal Reserve. With market participant convictions that the Fed will deliver three rate cuts this year having weakened, it would be hard for the BOK to loosen its stance.

Bank of Korea Set To Hold Interest Rates During Transition After Elections_2

Stable exchange rates are crucial for South Korea as it relies heavily on imports for food and energy. A rapid weakening of the won also risks triggering capital outflows and unsettling financial markets — an outcome the BOK would want to avoid at all costs.

The BOK will see two of its early inflation fighters depart from the board after the decision on Friday. Cho Yoon-Je and Suh Young Kyung are the only members who were present when the board decided to pull the rate up from a record low of 0.5% in 2021.

Even after their departure, the board’s mood isn’t likely to turn dovish right away. After the previous decision, Governor Rhee Chang-yong said he would not expect a rate cut in the first half. The BOK will have five decisions left to make in 2024 after the April meeting.

Still, the BOK’s tone has turned less hawkish of late. In February, one board member was open to a potential rate cut in the short term if deemed necessary, while five members saw the current rate as favorable. That was a change from January, when no one made the case for being open to a cut.

The next change from the BOK could be a tweak to its policy statement to signal more room for easing, according to Citi Research analysts Kim Jin-Wook and Choi Jiuk. The BOK “may open the scope for a gradual normalization of monetary policy in the rest of this year due to dovish risk factors,” they said in a note.

What Bloomberg Economics says...

“Fed rate cuts affect South Korea’s economy via three key channels: the exchange rate, trade, and financial conditions. SHOK shows that Fed rate cuts boost South Korea’s GDP. That suggests changes in trade and financial conditions have a stronger impact than changes in the value of the won.”

— Hyosung Kwon, economist

Those factors could include a worsening of credit risks for construction companies, a slowdown in private spending and an escalation of geopolitical tensions that weigh on global trade.

“We expect the BOK to remain on hold in the upcoming meeting, with an incrementally dovish tilt,” Goldman Sachs economists led by Goohoon Kwon wrote in a note. They forecast a policy easing cycle would begin in July, with a second cut in the last quarter of 2024.

Source：Bloomberg

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Alex

Economic

China’s consumer prices barely increased from a year earlier last month and industrial prices continued to slump, underscoring the deflationary pressures that remain a key threat to the economy’s recovery.

The consumer price index rose 0.1% in March from the prior year, the National Bureau of Statistics reported on Thursday. The median forecast of economists in a Bloomberg survey was a 0.4% gain. The inflation rate dropped from 0.7% in February, when it had climbed above zero for the first time in six months during the Lunar New Year holiday.

Producer prices fell 2.8% from a year earlier in March, extending a falling streak for the 18th straight month, the longest since 2016.

The figures suggest domestic demand is struggling to maintain any momentum it picked up during the holiday season, as the country’s real estate slump persists and the job market remains weak. That may dampen optimism — sparked by buoyant exports and factory activity data released in recent weeks — about China’s ability to hit its growth target of around 5% this year.

It may also ramp up pressure on the government to offer more support for the economy. Falling prices squeeze companies’ profit margins, discouraging them from investment, and there’s a risk consumers could become even more reluctant to spend in anticipation that goods will be cheaper in the future.

Chinese policy makers acknowledge that weak demand is a problem, and have lined up steps to counter it — including a plan to subsidize households and businesses that want to upgrade appliances or machines — though they’ve held back from large-scale stimulus.

In a sign that deflation could continue to haunt the economy in the coming months, price competition in some industries has intensified lately. Companies that produce materials for construction, like zinc smelters, have been forced to lower their charges because of excess capacity while electric-car producers are offering aggressive discounts to lure customers.

Core inflation, which strips out volatile food and energy prices, slowed to 0.6% last month from 1.2% in February, according to the NBS.