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Asian Metals Market Update: Central Banks are buying gold

This week - a brief view

US economic data released in the month of May indicates slower economic growth as opposed to recession. Food price globally has been on the rise in the month of May in the USA and all over the world. The industrial metal price is soft this month. The key question (in June month) is “What Will be the impact on the global economy due to rising food prices and rising energy prices”.

This week various US May jobs numbers, ADP, NFP, and ISM non-manufacturing will impact interest rate stance, US dollar Index trend, bond yields, and US stock futures.

Service sector jobs growth and service sector growth/slowdown will impact most. People like me believe that the rising cost of living will negatively impact the service sector in worldwide.

Traders’ as asking!!!!!!!!!

  • Where interest rates are headed.
  • When will the interest rate form a long-term top?
  • Have US bond yields formed a long-term top this month?
  • Has the US dollar Index formed a long-term top this month?
  • Will recession come? If not, then global stock markets will form a new historical high even in a rising interest rate scenario.
  • How long with crude oil and natural gas prices continue to rise.
  • Last, how long will it take for China to get over lockdown-induced slowdown.

Expectation changes in any of the above questions will cause a medium-term trend change in selected asset classes.

Central banks are buying gold and will continue to buy gold (some examples below)

Central banks are raising their gold buying targets. (a)  India’s reserve bank of India nearly doubles its gold purchases to 65 tonnes in financial year 2021-2022 to 760.42 tonnes. In the nine-month period between June 2020 and March 2021, RBI had bought 33.9 tonnes of gold. (b) Czech central bank Governor Ales Michl said he also wanted to sharply raise gold holdings to 100 or more tonnes over time from the current 11 tonnes for diversification.

The biggest fallout from the Ukraine war is that even the smallest nation is increasing gold reserves. Other than most African nations, every central banker is trying to diversify away from the US dollar. Cryptocurrencies and gold are being used to reduce US dollar holdings.

Central banks increasing their physical gold buys makes me believe that I should increase my allocation in the long-term portfolio. All price crashes in gold will be an investment opportunity and nothing else. However, in the short term and near term gold may/may not rise as per expectation.

Food protectionism is the biggest headline in the past two months.

Indonesia had banned palm oil exports. It will restart the same soon. But it had banned palm oil exports. India is the world’s biggest importer of palm oil. (Indonesia is proposing to introduce compulsory thirty percent palm oil blending of petrol as the method of reducing energy imports. )

India started and stopped Wheat exports and Sugar exports. (The local prices of wheat flour and sugar price has started hurting the masses in India. But stopping exports has not reduced local prices so far.)

There are a lot of nations that have reduced exports of food products.

There are two aspects to food protectionism. (a) Nations are increasing their buffer stocks of wheat, sugar, and other food products as a hedge against future reductions in supplies. The current demand for food products is partly due to panic buying by a lot of nations. (b) Key food-producing nations have also increased their buffer stocks as a hedge against future supply shocks.

Ukraine is just an alibi to address long-term food security by nations. There will be a bilateral deal among nations on food products import and export. It will be billed away from US dollars.

Interest Rates

Central banks have raised interest rates in the month of April and May. They will raise more between June and September to tame inflation. I am not discussing which central banks have raised interest rates in the past two months. But, yeah, almost every central bank chief has said of atleast one more interest rates hike this year.

The real flip-flop expectation has been on the interest rate hike by the Federal Reserve. At the beginning of May month, traders are expecting three consecutive interest rate hikes of half a percent by the Federal Reserve from June. Now there is the expectation of two half a percent interest rate hike this year. FOMC meeting on 15th June will tell us when the interest rate hike cycle will peak.

The interest rate gap between Federal Reserve and the key central banks will dictate the trend of the US dollar for the rest of the year. Gold price will rise or remain firm if this gap narrows and vice-versa.

Tame hyper-inflation or accept slower growth and recession. Every financial news on every website is filled with news of the upcoming recession. The global economy is slowing. The northern hemisphere summer spending will be slower than most of us expect. Inflation will be on the higher side as long as crude oil and natural gas prices continue to rise. (Fall in inflation will be only on paper.). Central banks stance on interest rates and growth will be closely scrutinized.

I believe that interest rate rise expectation will form a top in June month. Greenback will sink and the gold price will rise or remain firm.


COMEX SILVER JULY 2022 (current market price:  $2220.30)

  • 200-week moving average: $2065.20.
  • 50 days moving average: 2364.10
  • 200 days moving average: $2358.60.
  • Convergence of 50 days MA with 200 days MA signifies big twenty percent one-way price moves in June month.
  • There are two possibilities now. (a) Silver breaks past $2358-$2365 zone then it will rise to $2591 and $2737.50. (b) Silver does not break $2358-$2365 by 17th June, then it will fall to $2065.20 and $1917.10.
  • I am bullish on silver this week and in the month of June. I will prefer to use all price crashes upto $2065 to go long or invest.
  • Day traders and jobbers of silver have to remain on the sidelines this week.
  • 7-day View: Silver has to trade over $2136-$2168 zone to rise to $2292 and $2356 and $2415.10.
  • Silver will crash or sell off only if there is daily close below $2168 between 1st June and 6th June.

WTI CRUDE OIL current contract 2022 (current price $116.05)

  • Crude oil has to trade over $118.40 to continue its last week’s rise and target $125.50 and $135.60.
  • Bearish trend will be there on a failure to break $118.40 this week to $108.30 and more.
  • Short sellers remember that crude oil will see a very quickly rise if it trades over $118.40 any day in USA session.

LME ZINC SPOT 2022 (closing price on 27th May $3856.50)

  • 50 days moving average: $4009.90
  • 100 days moving average: $3836.30
  • 200 days moving average: $3527.80
  • 50 week moving average: $3447.80.
  • Zinc needs to trade over one hundred day moving average of $3836.30 for the next two weeks to rise to $4034.40 and $4235 and $4614.
  • Overall, all price fall upto $3447.80 will be a part of the bullish trend.
  • Bearish trend/crash will be there is zinc does not break $4034.50 by 7th June.

The trend of all metals and energies on or after 7th June is the key. USA is closed on 30th May. LME/London is closed on 2nd June. China is closed on 3rd June. The impact of various US jobs numbers released will be felt on 6th June and 7th June. The closing price of 7th June is the key to me.


31st May (Tuesday): CB Consumer Confidence (May)

1st June (Wednesday): ADP jobs May, ISM manufacturing, Federal Reserve Beige Book. 

2nd June (Thursday): Factory orders  

3rd June (Friday): NFP May, ISM nonmanufacturing

A lower side number in ADP and NFP will cause a selloff in US dollar Index, a very sharp rise in US stock markets, and a big rise in the industrial metal price. Even Asian currencies can see a temporary gain against the US dollar if US hiring slows in May month. The logic here is interest rate hike expectation will slowdown if US hiring slows in May month.

Day traders and jobbers remain on the side-lines this week.

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