Head of Commodity Strategy
Summary: Gold's post FOMC struggle continues with record highs in US stocks, recovering crypto currencies, easing inflation expectations and a dollar trading on the strong side, all playing their part in reducing investment appetite. We take a closer look at the technical setup and the new Basel III regulations and the potential impact on prices
Gold’s post FOMC struggle continues with record highs in US stocks, recovering crypto currencies, easing inflation expectations and a dollar trading on the strong side, all playing their part in reducing investment appetite. Silver meanwhile has settled into a relative tight range with the impact of gold and industrial metal weakness keeping potential buyers sidelined. Short-term focus on whether support below $1770 can hold ahead of Friday’s US job report.
Comment from our technical analyst Kim Cramer Larsen: After breaking the rising channel from the March low, gold traded down in almost straight line to retrace 61.8% of the March to May rally at $1769/oz. A break below last week’s low at $1761 and previous support at $1755 is likely to drive additional price weakness down to around $1734, the 76.4% retracement. If support holds the prospect for a stronger recovery above resistance at $1797 could see it return to a band of moving averages in the $1831-35 area. RSI is in bearish sentiment with no divergence meaning the short-term risk is to the downside.
Basel III: International regulatory framework for banks.
Much attention has been given to new banking rules, part of an international accord known as Basel III, that came into effect yesterday across Europe and by yearend also in the UK. An event that by many has been labelled as a new dawn for gold leading to a major liquidity squeeze that could send the price sharply higher. Whether or not that will be the eventual outcome, there is no doubt the rules will shake up the industry, especially when it comes to how unallocated, or so-called “paper” gold is being treated from a risk perspective.
While classifying gold in physical form as a zero-risk asset in line with cash and currencies, unallocated gold or “paper” gold which banks typically deal with the most will not. The new Net Stable Funding Ratio (NSFR) requirement specifies that an 85% Required Stable Funding (RSF) needs to be held by banks against the financing and clearing of precious metals transactions in unallocated gold. Previously it was zero and as a result it will increase the cost of holding unallocated gold and it will most likely lead to lower activity while making physical gold more attractive and less exposed to hedging or selling activities.
In addition and given its risk-free status, some are speculating that demand for allocated or physical gold could see more demand from banks as a store of value. While the dollar and yield developments remain the key drivers for gold, over time and especially when the UK, one of the world’s largest trading centers for gold, joins towards the end of the year, Basel III may end up having a net positive impact on the price action.
Silver (XAGUSD) - Just like gold, silver also managed to find support after correcting 61.8% of the March to May rally which at $25.67 also co-insides with the 200-day SMA. Additional weakness below could see it target the 76.4% retracement at $24.95. The upside is currently capped at $26.26 with a break above potentially seeing it target the 50-day SMA around $27. RSI is in bearish sentiment with no divergence meaning the short-term risk is to the downside.
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
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