At a time when Wall Street took turns bullish, precious metals took a big dive, taking back a sharp rise during the day and turning into a sharp decline

wallstreetcn ·  Apr 13 11:44

Source: Wall Street News

At a time when Wall Street analysts raised their target prices for precious metals one after another, and UBS was even bullish on gold close to doubling, precious metals surged and then took a big dive. Spot gold fell 1.18% during the day to 2344.4 US dollars/ounce. At one point, it fell about $100 from a high level; spot silver fell 1.78% to 27.94 US dollars/ounce during the day, and the intraday retracement was as high as 6%.

Just as Wall Street banks raised their target prices for precious metals one by one, on Friday, due to the situation in the Middle East, gold and silver US stocks continued their recent gains during the early trading session and continued to rise strongly, reaching a new high at nearly 23:00 p.m. Beijing time. However, since then, precious metals have taken a real big dive. Gold and silver have taken back all of their earlier gains, then fell, and all fell by more than 1%.

Spot gold fell 1.18% during the day to 2344.4 US dollars/ounce. Earlier in the day, it reached about 2,431 US dollars. At one point, it fell about 100 US dollars from a high level, and the retracement margin was close to 4%.

Spot silver fell 1.78% during the day to 27.94 US dollars/ounce. Earlier in the day, it reached about $29.80, falling back to a high of nearly 2 US dollars, and the retracement was as high as 6%.

Trading closed on Friday night, with Shanghai and Gold trading closing up 0.15% and the Shanghai Bank closing up 1.01%. In intraday trading, Shanghai and Gold rose more than 4% at night to 585 yuan, while the Bank of Shanghai once rose 6.66% to 7,777 yuan.

Earlier on the same day, Goldman Sachs said it would raise the gold price forecast before the end of this year from 2,300 US dollars to 2,700 US dollars/ounce. Goldman Sachs analysts said in the report:

Gold outperformed other assets during the interest rate cut cycle. Although interest rate cuts are yet to arrive, gold will continue to perform well, driven by central bank demand, US fiscal conditions, and geopolitical conditions.

After the US CPI data was higher than expected this week, the relative stability of gold once again proved that the gold bull market was not driven by normal macro factors. Gold has risen 20% in the past two months, despite the gradual decline in market expectations for the Fed to cut interest rates.

Traditionally, gold is priced in relation to the usual catalysts — real interest rates, growth expectations, the US dollar, etc. However, so far this year, none of these traditional factors can fully explain the speed and magnitude of the rise in gold prices.

In fact, since mid-2022, most of the rise in gold prices has been driven by new incremental (physical) factors, the most important of which is a sharp acceleration of gold reserves by emerging market central banks and retail purchases in Asia. These factors are well supported by the current macroeconomic policy and geopolitical situation.

Furthermore, considering the Fed's subsequent interest rate cut, and the final risks from the US election cycle and fiscal environment, it is still clear that gold is bullish.

Bank of America commodity strategist Michael Widmer said that gold and silver are among their most popular commodities, and Bank of America has given gold a target price of 3,000 US dollars/ounce by 2025:

Gold and silver are being promoted by central banks, Chinese investors, and a growing number of Western buyers. Macroeconomic factors are favorable to gold and silver, including the Federal Reserve's interest rate cut during the year.

Despite these macroeconomic factors driving up the price of gold, the performance of some traditional supporting factors is weak, and these factors are important for maintaining the bull market: the scale of asset management of physically supported ETFs has been declining, and non-commercial net positions have remained within a range. However, in fact, the long-standing positive correlation between the price of gold and physically backed ETFs has broken down, and the scale of asset management of these instruments has been declining. Similarly, on the institutional side, net commercial futures positions are also far below recent highs.

We believe that investors are still waiting for the Federal Reserve to cut interest rates. Once interest rate cuts are implemented, gold purchases should expand, which may further push up the price of gold.

Among the major Wall Street banks, UBS is most optimistic about precious metals. UBS analysts predict that the price of gold may nearly double from now to $4,000 per ounce:

The recent surge in gold prices reminds me of a famous saying: “Nothing happened for decades, then decades of things happened within a few weeks.”

Historical data shows that the price of gold may be sluggish for a long time, but once it breaks through, the rise will often be rapid and intense. Investors can refer to past market conditions for inspiration when deciding whether to pursue or avoid the recent rise in gold prices. Here I define a “breakthrough” as the price of gold being 10% higher than the previous historical peak. If history repeats itself, then it's not too late to participate in the gold rally.

Investors holding 2-3 years may see the price of gold double to more than $4,000.

A sign of a profitable liquidation is a negative real interest rate and an overall recession. Looking ahead, since real interest rates are still high and the recession seems far away, it is still too early to announce the end of the rise in gold prices.

According to the latest data from the US Commodity Futures Trading Commission (CFTC), investors' bullish sentiment on gold hit a four-year high, and bullish sentiment on silver hit a two-year high. Specifically, speculators' net long positions on COMEX gold increased by 929 lots to 179,142 contracts, a four-year high; their net long positions on COMEX silver increased to 38,496 contracts, a 23-month high.


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