Monsters of Rock: S&P says gold will be in buying territory if it falls to US$1850/oz

Falling jewellery demand in China and India could be a headwind for gold
S&P reckons spot gold buyers should wait until it hits $1850/oz to pile in
Materials sector down 0.31% on a quiet trading day

Gold has been one of the most recommended commodity classes in 2023, but its latest rally past US$2000/oz was stopped dead in its tracks last week for the third time in three years.

The good news is that when prices go down, investments get cheaper.

S&P Global Market Intelligence analysts say gold at US$2000/oz (currently US$1977/oz) was less attractive for investors than it will be once prices fall.

The ratings and price reporting agency and commodity forecaster sees US$1850/oz as a more reasonable entry point, according to a note today.

“On gold, our view is to wait for prices to fall under $1,850/troy ounce before making a spot purchase in the second quarter,” they said.

“April gold exchange-traded funds (ETF) demand increased in all regions, but demand inflows slowed to 0.4% month over month (m/m) from 1.0% m/m in March.

“With financial markets remaining anxious about the US debt-ceiling negotiation and financial stress from the US regional and small banking sector, investor demand remains an upside price risk to gold through the second quarter.”

The downside risk is coming from the retail side, where depreciation of currency in the key Chinese and Indian markets is throwing the cat among the pigeons.

While currency weakness is good for gold investment demand, it can put a stop on demand for jewellery.

“Physical retail demand faces headwinds as East Asian households refrain from luxury purchases as cost-of-living pressures persist,” S & P says.

“Indian jewelry demand fell 17% y/y in the first quarter of 2023 as price-sensitive consumers refrained from purchases.

“With spot gold prices currently above $2,000/troy ounce, and the Indian rupee and Chinese yuan depreciating 7% and 4% y/y, respectively, against the US dollar, retail jewelry demand will decline over the next six months.”

Lithium players fall to lead materials sector lower

The materials sector pottered away on a quiet Monday, slipping to a mild 0.31% loss.

But it was the lithium sector, hot enough to burn your tongue on last week, that was the laggard, with Pilbara Minerals (ASX:PLS) down 3.61%, Allkem (ASX:AKE) off 3.85%, MinRes (ASX:MIN) sliding 1.68%, Liontown (ASX:LTR) fading 1.42% and Core Lithium (ASX:CXO) slipping 4%.

It has ended a strong run for purveyors of the battery metal after lithium carbonate prices in China rebounded around 60% over the past month off recent lows of around US$21,500/t. Fastmarkets had Chinese carbonate prices even higher on Friday, hitting US$42,088/t.

Across the other major commodities iron ore stocks were little changed while gold stocks were inconsistent despite prices rising a little under 1% on Friday.

St Barbara (ASX:SBM) shares lifted almost 4% after Silver Lake (ASX:SLR) upped the cash component of its now $722m bid for the Gwalia gold mine to $370m.

The non-binding proposal will force fellow suitor Genesis Minerals (ASX:GMD) and SBM to again reconsider whether or not it is superior to a similar, agreed, transaction proposed by the Raleigh Finlayson led Genesis.