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XAU/USD: Citi expects physical gold demand to rebound, maintains $3,000 target

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Physical gold demand likely softened in the second quarter compared to the first, although “off a very strong base,” Citi analysts said in a Tuesday note.

The Wall Street behemoth notes that underlying gold consumption growth is still trending positively for 2024, potentially driving spot trading towards a record average price range of $2,400-$2,600 per ounce in the second half of the year “as financial investors play catch-up.”

Non-monetary gold imports into China decreased to a robust 137 tons per month in the second quarter from an unprecedented 189 tons per month in the first quarter. Citi continues to project a record 1,750 tons of onshore bullion imports in 2024, marking an 18% year-on-year increase and an eightfold rise from the 2020 pandemic levels.

“If our assessment is accurate, Chinese retail gold imports would represent 47% of world gold mine output in 2024, versus a 2021-2023 average of 34% and a 2017-2019 average of 36%,” the analysts state.

Meanwhile, official sector gold demand has stabilized at a record 28-30% of gold mine production since 2022, with the potential to increase towards 35% in a bull case scenario over the next year due to trade wars and concerns about US fiscal policies, Citi said.

Analysts model a record ~1,100 tons of central bank gold buying in 2024, a 5.8% year-on-year increase, with the possibility of exceeding 1,250 tons in a bullish scenario.

Moreover, inflows into gold exchange-traded funds (ETFs) should also improve in the second half of the year as the Federal Reserve begins its rate-cutting cycle, Citi added.

“We remain constructive on gold physical uptake over the next 12 months with a potential Fed cutting cycle and US labor market headwinds buttressing paper demand for the yellow metal,” the bank’s analysts wrote.

Their base case price targets for gold are $2,800-$3,000 per ounce by mid-2025, representing a 10-20% increase versus the forwards.


Oil dips as Gaza ceasefire expectations grow

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By Georgina McCartney

LONDON (Reuters) -Oil prices dipped on Tuesday as growing expectations of a ceasefire in the war in Gaza weighed on prices, more than offsetting news of a potential September interest-rate cut in the European Union that supported sentiment.

futures for September fell 39 cents to $82.01 a barrel by 1135 GMT. U.S. West Texas Intermediate crude for September dropped 39 cents to $78.01 per barrel.

Oil prices declined in the previous two sessions.

European Central Bank Vice-President Luis de Guindos hinted at a possible interest rate cut in September, buoying investor sentiment on Tuesday as lower borrowing costs support oil demand and prices.

The ECB left rates on hold last week but President Christine Lagarde said the next meeting in September was “wide open”, with several policymakers openly considering more cuts as inflationary pressures ease.

“Oil is range-trading, only moderately up, and that support might come from most European stock markets in positive territory, benefiting from a risk on environment,” said UBS analyst Giovanni Staunovo.

In the U.S., some players are also betting on September rate cuts by the Federal Reserve.

In the Middle East, efforts to reach a ceasefire deal between Israel and militant group Hamas, under a plan outlined by U.S. President Joe Biden in May and mediated by Egypt and Qatar, have gained momentum over the past month.

Biden is expected to meet Israeli Prime Minister Benjamin Netanyahu on Thursday at the White House, and the two are to discuss ways to reach a ceasefire, as well as Iran and other topics.

The war in Gaza has lent support to oil prices as investors priced in the risk of potential disruptions to global crude supply.

Meanwhile, traders shrugged off news of Biden’s exit from the presidential campaign.

“With the presidential debate somewhat calmed as Biden tries to clear a path for (Vice President Kamala) Harris, there does seem to be less anxiety around markets and the shelving of what the ‘Trump’ trade might actually mean,” PVM oil analyst, Tamas Varga said in a note.

Weighing on prices, the U.S. dollar strengthened on Tuesday, making dollar-denominated oil more expensive for holders of other currencies.

“Any further weakening of demand signals, combined with a resolution in Gaza, could lead to a further decrease in oil prices,” Priyanka Sachdeva, senior market analyst at Phillip Nova said, adding that a swell in U.S. inventories last week would be a sign of dented demand.

The American Petroleum Institute, a trade group, is due to release its estimates for last week’s oil inventories on Tuesday at 4:30 p.m. local time (2030 GMT), while official U.S. government data is scheduled to land on Wednesday.

A preliminary Reuters poll of six analysts estimated that stocks, on average, fell by 2.5 million barrels in the week to July 19, while gasoline stocks likely dropped by 500,000 barrels.

© Reuters. FILE PHOTO: A view shows the Yan Dun Jiao 1 bulk carrier in the Vostochny container port in the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

Investors will also be watching out for next month’s mini OPEC+ ministerial meeting, scheduled for Aug. 1, and is unlikely to recommend changing the group’s output policy, three sources told Reuters last week.

Russian oil production is close to the quotas agreed within the OPEC+ group, Deputy Prime Minister Alexander Novak said on Tuesday.

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China’s rate cuts fail to revive iron ore and copper: Russell

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By Clyde Russell

LAUNCESTON, Australia (Reuters) -China’s first cut to major short- and long-term interest rates in 11 months drew a distinctly ho-hum reaction from the commodities that usually would be expected to be the biggest beneficiaries.

The People’s Bank of China said on Monday it would cut the seven-day reverse repo rate to 1.7% from 1.8%, and minutes after that announcement benchmark lending rates were lowered by the same margin at the monthly fixing.

But the first broad reduction in interest rates since last August sparked little buying interest in iron ore and copper, the two commodities viewed as having the biggest exposure to the major parts of China’s economy, namely construction and manufacturing.

Benchmark iron ore futures on the Singapore Exchange (OTC:) dipped 0.4% to end at $106.79 a metric ton, while China’s main domestic contract on the Dalian Commodity Exchange ended daytime trade 0.3% lower at 798.5 yuan ($109.79) a ton.

London-traded closed down 1.0% at $9,216.50 a ton, the weakest finish since April 8, while Shanghai copper contracts ended at 76,220 yuan, down 0.86% and also the lowest close since April 8.

The lacklustre price response to the interest rate cuts follows the prevailing view that China’s policymakers aren’t really pulling out all the stops to boost the world’s second-biggest economy.

The twice a decade political event known as the plenum, held last week failed to inspire confidence that Beijing is on track to lift flagging economic growth by sparking a recovery in the residential property sector.

The risk that Donald Trump wins the U.S. presidential election in November and delivers on his promise to increase trade tariffs on China and others is also leading market watchers to be cautious about China’s economic prospects.

However, the worries over China are largely limited to sentiment where commodities are concerned, with both iron ore and copper showing trade patterns more related to pricing dynamics.


China’s iron ore imports are expected to remain robust in July, with commodity analysts Kpler tracking arrivals of around 111 million tons.

If the customs number comes in close to the Kpler estimate, it would represent a strong gain on the official 97.61 million tons reported in June.

China’s iron ore imports have been fairly strong so far this year, with customs data showing arrivals of 611.18 million tons in the first half, up 35.05 million, or 6.2% from the same period in 2023.

But much of the increase has ended up going toward rebuilding stockpiles, with port inventories monitored by consultants SteelHome rising 35.1 million tons since the end of last year to 149.6 million in the week to July 24.

Steel mills and traders have been taking advantage of the declining trend in iron ore prices so far this year to boost inventory levels, which had dropped to a seven-year low in October of last year.

Copper imports and exports also appear to be responding to market dynamics, with China’s arrivals of unwrought metal dropping sharply in June to 436,000 tons, a 15.6% slide from May’s 514,000.

This was in response to copper prices rising sharply, with London contracts reaching a record high of $11,104.50 a ton on May 20.

The higher prices effectively closed the arbitrage window for China’s traders, and instead of buying copper to add to inventories as they did earlier this year, they have started selling into the global market.

China’s exports of refined copper surged to a record high of 157,751 tons in June, more than double May’s level and 55% higher than the previous high from 12 years ago.

Copper stockpiles monitored by the Shanghai Futures Exchange have started easing from four-year highs, dropping to 309,182 tons in the week to July 19, having declined from the 51-month high of 339,964 in the week to June 7.

The overall message from China’s iron ore and copper markets is that traders are more responsive to global pricing and market dynamics than policy moves.

© Reuters. FILE PHOTO: Employees work at a copper smelter in Yantai, Shandong province, China April 26, 2023. REUTERS/Siyi Liu

While lower interest rates and other stimulus measures may eventually translate into higher physical demand, for now China’s demand for iron ore and copper is better explained by price moves.

The opinions expressed here are those of the author, a columnist for Reuters.

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Goldman still bullish on gold, China underpinning demand outlook

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on — Goldman Sachs said it remains bullish on in a note on Monday, citing both potential Fed rate cuts and China’s unwavering demand as key drivers, which have helped push gold prices to record highs. This positive outlook comes despite rising US interest rates, which usually tends to lower gold prices. 

While the Chinese market is sensitive to price fluctuations, the brokerage sees structural changes creating an “unshakeable bull market” for gold in China. Lower interest rates and rising economic uncertainties are boosting demand, even as surging prices cool jewelry purchases. 

Additionally, China’s central bank has been on a gold-buying spree in recent months, stockpiling hundreds of tonnes. Analysts say that these significant purchases are driven by concerns about US financial sanctions and the sustainability of US sovereign debt.

Goldman Sachs underscores the significance of central bank gold purchases, which have seen a threefold increase since mid-2022. “We still see very significant value in long gold positions, and maintain our bullish $2,700 forecast (a 12% increase over current spot prices) for 2025,” they added.

This, coupled with the anticipated return of Western capital to the gold market due to potential Fed rate cuts, paints a highly optimistic long-term picture for gold. 

While the Chinese market might experience short-term adjustments in demand due to price sensitivity, the overall outlook remains positive.


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