SocGen note some conflicting signs for gold

New York (Jun 28)  Analysts at Societe Generale say "positive signs from ETFs flows and moneymanagers’ point to higher prices at year-end". They go on to add "The market expects ETF flows to be positive in 2021 on the reflation trade, but rising rates mean that there are conflicting forces affecting the gold price.".

On the subject of rates, the team note, It will be important to evaluate whether the market remains focused on real rates, which should stay slightly negative due to inflation, or nominal rates, which should rise and appears to increase the opportunity cost of holding gold.

On the negative side, SocGen says the reflation theme must include gold, which is the one factor leading to maintain a positive 2021 outlook. But if that story loses momentum, our analysts' supportive outlook could fall apart quickly. As such, their conviction about gold’s positive outlook in 2021 is weak, but they think the momentum from Q2 will persist.

Longer-term the bank also is sounding a negative alarm and noted they are more convinced about 2022 though, where they see the unwinding of monetary easing and a possible new rate hike cycle potentially triggering sizeable ETF outflows. This is the premise behind their expectations of a steep gold price drop in 2022.

Looking at the technical side, the price has recently made a lower high. The main level on the downside to watch could now be the consolidation low at $1673.3/oz. If that breaks it could lead to more downside for the precious metal.

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