Gold (GC=F) is trading to the downside Wednesday morning after the precious metal hit nine consecutive intraday record highs. As the March CPI print shows that prices remain elevated above Wall Street expectations, Bank of America Securities Head of Commodities and Derivatives Research Francisco Blanch joins The Morning Brief to discuss gold’s retreat from record highs.
Blanch points to "tremendous" central bank gold buying as well as retail gold buying in China as sources of gold’s run-up. While some of this is cyclical, Blanch points to a "real big structural trend" toward increased gold purchases driven by the "major geopolitical fracture" with the West one said and Russia and China on the other. "It’s really been central banks not trusting central banks that has been behind the mentality in the gold market," he says. Wednesday’s decline, however, could be attributed to the fact that the expectation of interest rate cuts was potentially also accelerating the gold trade, Blanch adds.
Because of Bank of America’s expectations of three rate cuts, Blanch says he thinks gold prices will continue to move higher. If the Fed does not initiate a cutting cycle, "I think it will be pretty bad for the gold market," Blanch explains.
Outside of gold, Blanch indicates that commodities such as oil (CL=F, BZ=F) will perform well, topping out at around 95 dollars per barrel in the summer months. Gasoline and diesel prices may move up with oil as well. Copper (HG=F) is also an attractive commodity, Blanch says, with a supply crisis and an evolving structural need for the commodity to support the energy transition and upgrade power grids.
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