Gold to take advantage of the need for monetary easing and fiscal support – HSBC

Gold (XAU/USD) fell below $1,900 per ounce amid lower yields on US Treasuries and a resilient US dollar. Yet, analysts at HSBC think the need for monetary easing and fiscal support should be ultimately positive for the yellow metal.

Key quotes

“The International Monetary Fund (IMF) reiterated its forecast of a 2020 global contraction of 4.4%. This is an improvement over a 5.2% contraction predicted in June. Gita Gopinath, the IMF’s chief economist, said some $12 T in fiscal support and unprecedented monetary easing from central banks had helped to limit the damage from the pandemic but support must be maintained.”

“The wholesale drop across the precious metals complex seems a little overdone – although not entirely unwarranted. The problems cited by the IMF’s WEO still require monetary easing and fiscal spending to continue, which is ultimately positive for gold.”

“The Chinese economic recovery is broadening and foreign demand for China bonds should remain strong due in part to index inclusion and the CNY’s yield advantage. Despite the removal of the 20% reserve requirement, we still expect the downtrend in USD/CNY to remain fundamentally intact. This is supportive of gold demand in China, a nation where it has been weak for many months due to high prices.”

“US headline CPI and core CPI both rose 0.2% over the previous month in September. CPI data matched expectations in September and some price categories have started to stabilise after months of volatility. Gold may have gained on some signs inflation is getting traction.”