Although this week we experience slight drop following the release of US Q1 GDP growth data (first-quarter U.S. GDP growth came in weaker than expected at up 1.1%, year on year, compared to expectations for a rise of 2.0%), gold prices are still up around 9.5% YTD, and spot gold is currently trading at close to USD2000/oz, which is not far from the record high of USD 2,075/oz from August 2020. A key feature of the rally has been solid central bank demand and financial investors returning to the market.
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Looking at 2023 YTD, we could see annual purchases total ending at around 750 metric tons. Swiss customs data showed that Switzerland exported more gold to mainland China in March than in any month since July 2022, but at the same time shipments to India and Turkey fell from February’s level. Although this represents slowdown, if this trade numbers are achieved, it would represent second highest in history after last year’s record of 1,136 metric tons, and with persisting economic uncertainty, investors are sure to search for hedging options.
Initial Jobless Claims, which measures the number of individuals who filed for unemployment insurance for the first time during the past week also unexpectedly fell during past week, indicating that the labor market is running strong.
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In the meantime, economists are paying close attention to the pending home sales numbers because that index is seen as a prediction for the housing market. The U.S. pending home sales index dropped 5.2% in March, although consensus forecast called for an increase of 0.6%. A lag of a month or two usually exists between a contract and a completed sale.
Treasury yields surged after data showed that the personal consumption expenditures prices read higher than expected. This is usually a good sign for USD, while a lower than expected reading should be taken as negative/bearish for the USD, but in turn, could also result in lower demand for gold, which happened this time.
FED is widely expected to raise interest rates by 25 basis points when it meets next week. Although higher interest rates work against gold as it does not provide any yield, they can work in it’s favor because they again raise the chance of another banking crisis.
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