Housekeeping: Good Morning.
“The Gold reset is a process, not an event”
Today:
Premium Analysis: Goldman’s Report in Buy-Season context
Discussion: "The ‘secret’ buyer has elevated prices and reset the [Gold] relationship"
Premium Analysis:
Goldman raises target from $2700 to $2900
Goldman Identifies “Secret” Buyer
The Gold Reset is Announced
Goldman Reveals New Gold-Model Fundamentals
1- Goldman raises target from $2700 to $2900
We raise our gold price forecast from $2,700/toz to $2,900/toz for early 2025 for two reasons.
Continues here
2- Goldman Identifies “Secret” Buyer
The Bank openly discusses increased secretive buying of Gold in London being held for an unknown buyer embedded in a walkthrough of the LBMA/ Swiss Bullion markets.
Our estimates of China’s institutional gold purchases in the London OTC market align with the PBoC reports, but tend to be higher, start earlier, and last longer (Exhibit 4). While the PBoC reported no additional purchases after April, our nowcast estimates 50 tonnes of institutional purchases from China on the London OTC market in May
The Bank does not outright say the buyer is China. They merely lay out the historical patterns of China buying. China buying ( via PBOC, SAFE,The Military other proxies) is almost always, higher for longer than is stated publicly.
Continues here
3- The Gold Reset is Announced
In this report, they also reveal their take on if correlations with rates are broken or not. Their conclusion is a Golden reset is in progress.
While the gold-price-to-rates relationship remains intact in changes, the ‘secret’ buyer has elevated prices and reset the relationship in absolute levels
Stated another way, Goldman is saying Gold is readjusting its correlation against western rates, as opind in this space for some time . (See: Dollar Correlations Are Not Broken
4- Goldman Reveals New Gold-Model Fundamentals
The last few months have see many banks overhaul how they look at Gold pricing.which did not go unnoticed here. Goldman, along with several other Banks like, CITI, MUFG, GS, BOA, and UBS recently revealed a new way to model gold prices.
This forecast also relies on our rule of thumb that 100 tonnes of physical demand lifts gold prices by at least 2.4%, the lower bound of our regression estimate
The GS new model (we feel) is more transparent, is quantified and reveals the logic of their new analysis.
Continues here
News Analysis:
Equity Recap:
US equities rallied on Monday, with the S&P 500 and Dow Jones Industrial Average closing at record highs. Large caps bested small caps: S&P 500 (+0.42%) vs. Russell 2000 (+0.24%). MSCI Emerging Markets (EEM) and MSCI EAFE (EFA) lost 1.61% and 0.35% respectively.
Market News: Rate cut pace may slow
"Federal Reserve Chair Jerome Powell said officials would continue to reduce interest rates from a two-decade high to maintain solid economic growth WSJ
"Artificial intelligence chip startup Cerebras Systems on Monday filed its prospectus for an initial public offering, with plans to trade under the ticker symbol “CBRS” on the NasdaqCNBC
"Chinese equities posted their best day since the 2008 global financial crisis on Monday, extending a historic rally triggered by Beijing’s bumper stimulus package...FT
"German inflation fell to its lowest level since February 2021 this month Reuters
"Masayoshi Son’s SoftBank will invest $500mn into OpenAI as part of a fundraising round that is expected to close this week and value the artificial intelligence start-up at $150bn. FT
Politics/Geopolitics: New Hockey Fight
Israel Attacks, Iran backs down, and the US sends troops.
Israeli military said it began limited, localised and targeted raids against Hezbollah targets in the border area of southern Lebanon, while it said the targets are located in villages near the border and pose an immediate threat to northern Israeli communities.
Axios reported that officials also confirmed that the Israeli ground operation in southern Lebanon has started.
The Pentagon said the US is to send a 'few thousand' additional troops to the Middle East to boost security and defend Israel if needed, according to API
Data on Deck: Unemployment
MONDAY, SEPT. 30 Chicago Business Barometer (PMI)
TUESDAY, OCT. S&P final U.S. manufacturing PMI
WEDNESDAY, OCT. 2 ADP employment
THURSDAY, OCT. 3 S&P final U.S. services PMI
FRIDAY, OCT. 4 U.S. employment report1
FINAL MARKET CHECK
Premium:
A word on this report in context of seasonality
