Ground Breakers: 'Limited downside' as ANZ tips gold to hit US$2000/oz

Gold prices continue to rise in the fallout from the SVB and Signature Bank collapses in the US
Now over US$1900/oz after near US$100/oz rally in past two days
ANZ raises 2023 year-end forecast by US$100 to near record US$2000/oz

Gold is on a tear, crossing over US$1900/oz overnight as the fallout from the travails of the American banking sector steam up the bullion market.

Fears of monetary collapse send investors flocking to gold, as seen in the aftermath of the GFC.

ANZ now says there is “limited downside” for the precious metal, which has had a typically volatile opening to 2023.

Its commodity strategists Daniel Hynes and Soni Kumari now think the metal will end the year US$100 higher than previously forecast at US$2000/oz.

“Gold prices will follow the shifting market expectations of the Fed’s terminal rate. A repricing above 5.5% could be a downside risk in the short term, but it will not be a game changer,” they said in a note.

“We still hold a bearish view for the USD in 2023 and think its upside could ultimately be capped by the relative outperformance of the US against other economies. A weakening greenback will be a key tailwind for gold prices.

“We believe the backdrop is turning supportive for investment demand, after aggressive rate hikes resulted in net outflows in 2022. A pause in the interest rate cycle, a weaker USD and safe haven buying in the face of rising economic risks will all support investor appetite.

“We see limited downside, with a 0-3mth target of USD1,800/oz. We have lifted our year-end forecast by USD100/oz to USD2,000/oz.”

ETFs to reverse

ETF holdings have fallen for 10 straight months, even as central banks have bought gold with the ravenous energy of a stoner past midnight in a 7-Eleven.

But last year’s rate hikes and expectations of slowing economic growth as a result of the tighter monetary policy are expected to hurt the US dollar and increase safe haven buying.

“The recent price correction should provide an opportunity for investors to increase their allocations. We expect ETF flows to reverse to +120t this year, with upside bias based on macroeconomic developments,” Hynes and Kumari said.

“Speculative net-long positions are at a multi-year low, limiting room for material liquidation. We believe there is more scope for building fresh long positions.

“Bar and coin demand is also likely to be supportive, but the growth is likely to slow from last year.”

However, ANZ says there are risks of a so-called “false breakout, having broken its “key” US$1845/oz resistance level on the Silicon Valley Bank collapse on Friday and higher unemployment numbers in the US.

“This suggests that bullish momentum is likely to continue, however, one should be cautious of a false breakout. To continue the bullish momentum, gold needs to trade above USD1850/oz level. The next resistance is at USD1960/oz,” Hynes and Kumari said.

“On the downside, if price come back below USD1845/oz range, then a consolidation looks possible until it breaks the key support of USD1810/oz, which also coincides with the 100-day moving average.

“A break of this could trigger a technical selloff, dragging prices to a low of USD1,750/oz. We see this level setting the lower bound for this year’s price range.”

On an Australian dollar basis gold is trading near all time highs at $2873/oz.

Gold miners salvage materials sector again

Yancoal (ASX:YAL) went ex-div with other coal miners looking bloodied and bruised today as well and market leader Whitehaven Coal (ASX:WHC) dropping 5.26% to its lowest point since mid-August.

While energy, financials and information tech were the hardest hit sectors in a 2.01% fall for the ASX 200, materials stocks offered little respite for investors at a 1.58% loss.

That came despite iron ore futures sitting near year highs at US$131/t.

But investors with the gold bug will be pleased today, with the precious metals sector stealing the limelight back from battery metals in recent days.

While lithium stocks like Pilbara Minerals (ASX:PLS) and Allkem (ASX:AKE) foundered, the All Ords Gold Sub-index recorded its second straight morning of outsized gains by rising almost 3%.

Northern Star Resources (ASX:NST) lifted 3.07% and is now in positive territory for 2023, Evolution Mining (ASX:EVN) was up 1.25% and Newcrest (ASX:NCM) lifted 3.62% to $24.89, returning to levels it saw a month ago when the largest ASX gold producer rejected a takeover bid from Newmont.

Dual-listed AngloGold Ashanti (ASX:AGG) rose 9.32%, while Perseus (ASX:PRU), Gold Road (ASX:GOR), De Grey (ASX:DEG), Silver Lake (ASX:SLR) and Westgold (ASX:WGX) were all well supported by investors.