Here’s a look at the latest developments in the precious metals market for the week beginning 3/1/2022.
- Gold Price Forecast: XAU/USD breaks higher towards $1,920, Ukraine updates eyed
- This is when gold price will hit $10k, according to mining legend Pierre Lassonde
- Diamond Jewelry Industry On Edge As Russia Sanctions Threaten To Impact Diamond Supply
Gold Price Forecast: XAU/USD breaks higher towards $1,920, Ukraine updates eyed
Gold is breaking higher once again above $1,900, having found strong buyers earlier in the Asian session. A sense of calm prevails on the Russia-Ukraine conflict front, compelling US dollar bulls to give up their control while lifting the bright metal. Although it remains to be seen if the metal sustains the renewed upside, as the US Treasury yields hold firmer across the curve amid a potential 25-bps March Fed rate hike due on the cards. Markets also look forward to the US ISM Manufacturing PMI slated for release later on Tuesday while the developments surrounding the Ukraine crisis will likely remain the main market driver. The focus also remains on US President Joe Biden’s State of the Union speech due early Wednesday.
While the Russia-Ukraine story underpins the metal’s safe-haven demand, the recent rebound of the US dollar seems to have tested the XAU/USD bulls of late.
That said, the US Dollar Index (DXY) rise 0.13% intraday to 96.84 at the latest. In doing so, the greenback gauge benefits from the US Treasury yields, up two basis points (bps) to 1.856%. Also favoring the greenback bulls is the anxiety over the next move of Russia as it has already bombarded civilian buildings while the peace talks are still not off the table.
Elsewhere, upbeat US inflation expectations battle the recently softer Fedspeak to test the DXY bulls. The 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data jumped to the highest since November 23, marked a 2.62% figure by the end of Monday’s North American session. It should be noted that the CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bosticsaid on Monday, “Today I am in favor of a 25 bps move at March meeting.”
Amid these plays, the stock futures remain sidelined whereas the Asia-Pacific equities also trade mixed by the press time.
Given the market’s indecision, each incoming headline will be closely observed for fresh directions. Among them, geopolitical and inflation-linked news will be more important. Also crucial will be the US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech.
Originally published on FXStreet by Anil Panchel
To learn more: Gold Price Forecast: XAU/USD breaks higher towards $1,920, Ukraine updates eyed
This is when gold price will hit $10k, according to mining legend Pierre Lassonde
The conflict in Eastern Europe is likely to be protracted, and energy prices will respond by rallying even higher from current levels, said Pierre Lassonde, chairman emeritus of Franco-Nevada and CEO of Firelight Investments.
“I think that Mr. Putin calculated that this was going to be an easy, quick win for him, to just roll into Ukraine and essentially put Humpty Dumpty back together, which was what he was trying to do. His plans are not turning out exactly as he had wished. With the Germans now changing tack and saying, we’re going to provide military help, that has changed the possible outcome of this war quite dramatically. The longer it lasts, the more profound the impact is going to be, particularly on the energy market. If this goes on for two, three weeks, a month, I think you’re looking at $200 oil,” Lassonde told Michelle Makori, editor-in-chief of Kitco News on the sidelines of the BMO Global Metals & Mining Conference.
Brent crude last traded at $100.14 a barrel, with WTI crude at $95.15 a barrel.
Lassonde’s comments come as Germany announced plans to provide 1,000 anti-tank weapons and 500 surface-to-air missiles to Ukraine as soon as possible, reversing a long-standing principle of not exporting weapons to conflict areas.
Lassonde noted that with higher energy prices comes higher, sustained inflation.
“We are seeing the same pressure today on inflation as we saw back in the 1970s”, he said. “From 1976 to 1981, you had inflation going up every year, we had interest rates going up every year, you had the dollar going up every year, and you had gold going up every year. That’s what we’re going to see for the next four years.”
On what the Federal Reserve is likely to do next in response to higher response, Lassonde said “it doesn’t matter.”
“The Fed is in a box,” he said. “They cannot raise interest rates more than 1.5% without putting the economy back in the toilet. They have nowhere to go. Mr. Powell has to feel like a porcupine in a balloon factory. It doesn’t matter because the real rate of interest, which is what really matters to gold, is going to stay deeply negative for the next four years, which is exactly what happened in the 1970s.”
Medium-term, gold is headed towards $2,200 to $2,400 an ounce, Lassonde said. Long-term, over the next five years, the Dow to gold ratio could converge to 2:1, should the Dow Jones contract by 20%-30%. This would imply a $10,000 gold price.
There have been two times in history, once in the 1930s, and once in the early 1980s, when the Dow to gold ratio was 1:1.
Lassonde said that a 1:1 ratio today would be too aggressive, as it would mean that stocks would have to crash dramatically from current levels, and with so much liquidity created by the central banks, a correction beyond 30% would be unlikely.
“I think we can see two to one,” he said. “At two to one, with a 30% pull-back, you’re looking at $10,000 [an ounce]. That’s doable. I think in the next five years.”
Originally published on Kitco by Kitco News
To learn more: This is when gold price will hit $10k, according to mining legend Pierre Lassonde
Diamond Jewelry Industry On Edge As Russia Sanctions Threaten To Impact Diamond Supply
Mere weeks ago, Bain and the Antwerp World Diamond Center (AWDC) issued their annual “Global Diamond Industry” report, recounting the diamond jewelry industry’s “brilliant recovery” from the pandemic downturn.
Covering the entire diamond value chain from production to consumer sales, it reported, “In 2021, revenue increased 62% [year-over-year] in the diamond mining segment, 55% for cutting and polishing and 29% for diamond jewelry retail – all rising above pre-pandemic levels, +13%, +16%, +11% respectively.”
Looking to this year, it predicted continued strong growth at a higher level than during the pre-pandemic period. “Demand for diamond jewelry and polished and rough diamonds is expected to grow through the first half of 2022.”
But with the breakout of war in the Ukraine and the resulting Russia economic sanctions, the supply of rough diamonds may be cut by over 25% as Russian-owned Alrosa, the world’s largest diamond producer by volume, was placed on the sanction list.
All told, the U.S. Treasury says Alrosa is responsible for 90% of Russia’s diamond production and accounts for 28% of global supply. The Russian government owns 33% of Alrosa and another 33% is owned by Sakha, the Russian Republic where the company is headquartered. In addition, Alrosa CEO Sergey Ivanov Jr. was added to the specifically-designated nationals sanction list.
Speaking on behalf of the AWDC, Tom Neys said, “Sanctions can have a significant impact on the diamond business. It is a blow that should hurt Russia, but there is a chance that we do more damage to ourselves. The Russians can easily trade their diamonds with non-EU countries.”
The diamond jewelry industry is going into the year with diamond supply at historically low levels, estimated by Bain at 29 million carats in 2021. “Upstream inventories declined ~40%, driven by high demand and slow production recovery, and are near the minimal technical level,” the report stated.
With sales of diamond jewelry reaching $84 billion in 2021, consumer demand kept surging even as prices rose. Rapaport’s RapNet Diamond Index showed the average price for a one-carat diamond advanced 17.4% throughout 2021. And prices continued to rise, up 6.9% in January.
It will take some time for the impacts of the Russian sanctions to be felt downstream, but higher prices for diamonds and diamond jewelry are bound to come.
Originally published on Forbes by Pamela Danziger
To learn more: Diamond Jewelry Industry On Edge As Russia Sanctions Threaten To Impact Diamond Supply