Gold flirts with record high as investor demand surges

A more cautious tone amid mixed economic data saw only limited gains across the commodities complex. Supply side issues were also in focus.

Gold flirted with a record high, surging above USD2,100/oz, as investors continued to pour into the safe haven asset. The uncertain economic backdrop, combined with geopolitical risks has seen investor demand rise. This comes as monetary policy looks likely to switch to an easing bias, a boon for non-yielding assets such as gold. The swaps market estimates a 79% chance of a rate cut in June. Robust buying is emerging in the physical market, with inflows into the gold-backed SPDR Gold Share ETF rising for the first time in nine trading sessions.

Crude oil prices rallied in earlier trading after the OPEC+ alliance announced it would extend its voluntary production cuts. The roughly 2mb/d reduction will now remain in place until the end of the June quarter. More importantly, Russia emphasised it would cut output and not just exports. These cuts will be returned gradually, subject to market conditions, OPEC’s Secretariat said in a statement. The move was widely expected, with prices subsequently giving back those early gains as traders tried to lock in some profits. We expect the move to remain supportive in the near term. Ultimately the market has been moving higher in recent weeks amid improving fundamentals. Rising spot prices indicate the physical market has begun to tighten amid a host of other supply side disruptions. While tensions in the Middle East have yet to directly impact supply, the Red Sea disruptions have increased the time oil is unavailable to the market.

North Asian LNG extended recent gains as low prices continue to entice buyers into the spot market. This comes as other energy markets become relatively more expensive, with coal prices increasing to a point where coal-to-gas switching is likely to increase. Prices remain supported by disruptions to US LNG exports. Volumes fell 7% m/m to 7.8mt in February, according to ship tracking data. Demand may also be on the rise in Japan. Forecast higher temperatures over coming months could see cooling demand. European gas was also higher as the EU moved to extend a voluntary 15% gas demand reduction goal through next winter.

Copper gained as lower inventories in China stoked hopes of stronger demand. Stockpiles held in LME warehouses fell by the most since July on a percentage basis, marking a fifth-straight daily drop. This comes as the market awaits China’s GDP target, expected to be announced at this week’s “two sessions” meeting in Beijing. While a lower growth rate is expected, the market will be keen to hear of any new policy measures to support the property and infrastructure sectors. Lithium prices gained last week amid signs Chinese EV makers are ramping up output.