Gold: Oil link and Chinese demand in focus – Commerzbank

Commerzbank’s Barbara Lambrecht notes that since the Iran war began, Oil has been the main driver of Gold, via inflation and rate expectations. Gold briefly stabilized near USD 4,600 per ounce before slipping below USD 4,550 on stronger US data and higher Oil. China’s bar and coin demand surged, and Beijing plans to ease Gold import rules from June.

Rates, war premium and Chinese flows

"Since the start of the Iran war, the oil price has arguably been the key determinant of gold price movements. The following correlation applies: an rising oil price implies, all other things being equal, higher inflation risks and thus an increasing likelihood of tighter monetary policy; the prospect of higher opportunity costs associated with holding gold, in turn, weighs on the gold price."

"Indeed, the inverse correlation pattern held true over the last seven trading days; until yesterday, however, price swings in the gold market had become increasingly muted, so that it almost seemed as though the market had found at least a temporary equilibrium at USD 4,600 per troy ounce."

"Yesterday, sentiment then shifted once again against gold: After robust US orders and rising oil prices had fuelled interest rate fears, the gold price slipped below USD 4,550 and closed at just over USD 4,500 per troy ounce, a one-month low."

"According to the WGC, China’s demand for bars and coins in the first quarter was almost 67% higher than in the previous year, accounting for just under 45% of global demand for bars and coins. The high demand outside the jewellery sector could be one reason why the country intends to relax its import rules from June"

"The People’s Bank of China has published a draft proposal under which expanding the application of “multi-use permits,” extending their validity to nine months from six, and removing limits on the number of times they can be used. More Chinese ports will also be authorized to clear bullion."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)