SocGen think real rates could return to push gold lower
(Kitco News) - Societe Generale has released their latest commodities report and it does not make for good reading for gold bugs. The French investment bank thinks that real rates could turn positive again and this could send the yellow metal lower. Having said that it does believe there could be support in the near term.
The report noted "deeply negative real rates on high inflation push the gold price in the short termGold's limited gains in 2021 despite low rates and high inflation does not bode well for its prospects. Our analysts are still slightly supportive in the near term as they expect monetary and fiscal policy to remain highly accommodative."
When speaking about inflation SocGen said "Inflation is expected to retreat in the second half of next year while interest rates slowly increase. The US real rates should turn positive again by the end of 2022 and see gold goldilocks moment passing. However, our strategists' conviction is mainly pinned to their expectation that the ETF outflows will cease."
When it comes to central banks "Central banks gold purchases should also be one of the drivers supporting price in the longer term and avoid a sharper drop in price when real rates rise. Central banks, especially in EM countries, China and India have a low share of their reserve as gold compared to western economies. In a world becoming more multipolar and with the US debt ballooning the US dollar as a reserve currency is losing credibility and central banks are keen to diversify away from it building up gold reserves."
SocGen also spoke about base metals. Copper has been consolidating recently and the bank thinks the supply-demand balance has peaked. It said, "sentiment starts to reverse and large mine supply will confirm the downward trend in prices copper prices more than doubled from 1Q20, when COVID hit the global economy, to May 2021, but this impressive rally then stopped, and prices have trended downward over the past six months."
When speaking of demand the French bank noted "overall, our strategists expect consumption to expand at a slower pace in 2022. Manufacturing PMIs, a gauge for copper demand, have trended down in Q3 for the US and the eurozone while China seems to have found a floor."
On the plus side "Additionally, the energy transition will clearly drive the copper market in the next few decades.". On the supple side the strategists said "there is a danger that the manufacturing sector will fail to meet pent-up demand quickly, effectively capping upside growth potential for copper demand in the coming months. Also, because of mine supply, our strategists expect the market to be flooded til 2023, which should be enough for market participants to pressure prices. Lastly, they believe speculation played a larger role than usual in the strong price recovery, which casts doubt on its sustainability"