Forecasting gold price movement

Gold prices hit a record of over US$2,400 per troy ounce in mid-May. The commodity is up by around 20% over the last year and is up by close to 50% since late 2022, and is now nearly double the level that prevailed for much of the 2010s.

Two key factors are at play behind this Bull Run. The first is smoldering geopolitical tensions amid US-China frictions and wars in the Middle East and Europe, which have stoked safe-haven demand. The second—and perhaps most important—is central bank purchases.

Monetary authorities snapped up more than 1,000 tons of the metal in 2022 and 2023, around double the average of the prior decade, and gobbled up a record amount in Q1 2024 as they looked to diversify their reserves and hedge against potential currency depreciation. These drivers outweighed a strong US dollar and high interest rates, which generally tend to weigh on gold prices.

Analysts have become increasingly optimistic on the outlook of yellow metal so far this year. The average gold prices forecast for 2024–2028 are about 10% higher now than back in January. The metal in the coming years will remain—for the first time in history—comfortably above US$2,000 per troy ounce.

The drivers of this bright projection are manifold. Firstly, gold jewelry consumption is set to rise globally as emerging market consumers become ever-wealthier. Moreover, geopolitical risk will likely remain, spurring safe-haven demand.

Furthermore, the growth of high-tech manufacturing will also require more gold; the metal is used in most automobiles and consumer electronics.

Finally, production of the metal is seen as fairly stagnant ahead, as declining grades and the depletion of mine reserves offset the impact of new mines and expansions.

The outlook for silver prices is also upbeat

Gold and silver prices tend to move in close correlation, given that both are used in jewelry and as investment and safe-haven assets. As with gold prices, silver prices peaked in mid-May at an over-decade high, and are seen at historically elevated levels of over US$25 per troy ounce over forecast horizon to 2028. But silver has one crucial difference to gold. It is more widely used in industry, particularly in high-growth sectors such as solar panels and electric cars, which will give an extra boost for silver prices in the coming years. Couple this with the metal’s currently high price discount with gold and silver looks even more appealing. Gold may be capturing most of the headlines right now, but prospects for silver prices are at least as bright.

 

Democrats to Boycott Netanyahu Speech

A growing number of House Democrats plan to boycott Israeli Prime Minister Benjamin Netanyahu's upcoming speech to Congress on July 24, criticizing his approach to the Hamas conflict and his disregard for President Biden's preferred strategies.

Netanyahu's upcoming speech to Congress has deepened existing divisions among House Democrats. While some plan to boycott in protest of his policies and actions, others will attend to demonstrate their support for Israel as a vital ally. This event underscores the broader debate within the party over the best approach to the Israeli-Palestinian conflict and US foreign policy in the Middle East.

Several lawmakers, such as Hank Johnson, have explicitly stated their intention to avoid the event, reflecting a long-standing animosity toward Netanyahu's conservative policies and actions, including his criticisms of the Iran nuclear deal during Obama's presidency.

In 2015, Netanyahu's speech to Congress sparked a similar boycott due to his opposition to the Iran deal and Speaker John Boehner's coordination of the event without consulting the White House.

This year, at least 58 lawmakers plan to boycott again, among them Lloyd Doggett and Jan Schakowsky, both critical of Netanyahu's actions in the Gaza conflict. They argue that his approach has led to unnecessary loss of life and that he should focus on peace efforts rather than addressing Congress.

While some Democrats plan to boycott the speech, others intend to attend to show solidarity with Israel. Juan Vargas emphasized the importance of supporting Israel as a democratically, despite internal divisions within the Democratic caucus. Top House Democrats, including Pete Aguilar and House Minority Leader Hakeem Jeffries, acknowledge that each member must decide whether to attend based on their beliefs and the views of their constituents.

Netanyahu's visit highlights ongoing tensions within the Democratic Party regarding US policy toward Israel and the Palestinian territories. Pro-Israel Democrats often clash with pro-Palestinian progressives over civilian casualties in Gaza.

The announcement of Netanyahu's address by Speaker Mike Johnson and Senate Minority Leader Mitch McConnell excluded Senate Majority Leader Chuck Schumer and Jeffries, despite their earlier support for the invitation.

Former Speaker Nancy Pelosi expressed her disapproval of the invitation, arguing that she would not have extended it if she were still leading House Democrats.

Schumer, while critical of Netanyahu's policies, believes in the importance of maintaining strong US-Israel relations.

Supporters of the speech, like Josh Gottheimer, argue that hearing from a key ally like Israel is crucial, especially given the ongoing threats from groups like Hamas and Iran-backed proxies. They emphasize the need for continued collaboration between the US and Israel in combating terrorism and ensuring regional stability.

Pakistan: Central Bank Reduces Interest Rate

At its meeting on June 10, 2024, the Monetary Policy Committee (MPC) decided to reduce the policy rate by 150 bps to 20.5%, effective from June 11, 2024. The MPC noted that while the significant decline in inflation since February was broadly in line with expectations, the May outturn was better than anticipated earlier. 

The Committee assessed that underlying inflationary pressures are also subsiding amidst tight monetary policy stance, supported by fiscal consolidation. This is reflected by continued moderation in core inflation and ease in inflation expectations of both consumers and businesses in the latest surveys. At the same time, the MPC viewed some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments. Notwithstanding these risks and today’s decision, the Committee noted that the cumulative impact of the earlier monetary tightening is expected to keep inflationary pressures in check.

The MPC noted the following key developments since its last meeting. First, real GDP growth remained moderate at 2.4% in FY24 as per provisional data, with subdued recovery in industry and services partially offsetting the strong growth in agriculture. Second, reduction in the current account deficit has helped improve the FX reserves to around US$9 billion despite large debt repayments and weak official inflows. The government has also approached the IMF for an Extended Fund Facility program, which is likely to unlock financial inflows that will help in further build-up of FX buffers. Lastly, international oil prices have declined, whereas non-oil commodity prices have continued to inch up.

Based on these developments, the Committee, on balance, viewed that it is now an appropriate time to reduce the policy rate. The Committee noted that the real interest rate still remains significantly positive, which is important to continue guiding inflation to the medium-term target of 5 – 7 percent. The Committee also emphasized that the future monetary policy decisions will remain data-driven and responsive to evolving developments related to the inflation outlook.

Real Sector

Latest estimates indicate real GDP growth at 2.1% in Q3-FY24 against a contraction of 1.1% in the same quarter last year. While agriculture was already showing strong growth, industry also witnessed positive growth in Q3. Also, initial growth estimates for both Q1 and Q2 for FY24 were revised upward. Taking into account the developments in the first nine months, FY24 growth is provisionally estimated by PBS at 2.4% against a contraction of 0.2% in FY23. Almost two-thirds of this recovery was explained by improvement in the agriculture sector. These developments are in line with the Committee’s earlier expectations. For FY25, the MPC expects economic growth to remain moderate. This assessment takes into account the impact of expected moderation in agriculture output and ongoing stabilization policies.

External Sector

The current account posted a surplus for the third consecutive month in April on the back of robust growth in remittances and exports, which more than offset the uptick in imports. During July-April FY24, the current account deficit narrowed significantly to US$202 million. In the same period, exports grew by 10.6%, mainly driven by increased quantum of rice and higher value-added textile exports. Conversely, imports decreased by 5.3% during the same period due to lower international commodity prices, better domestic agriculture output and moderate economic activity. Workers’ remittances also remained robust in recent months, reaching an all-time high of US$3.2 billion in May 2024. The resultant lower current account deficit, along with improved FDI and the disbursement of SBA tranche in April, has facilitated ongoing large debt repayments and supported the foreign exchange reserves held by the central bank. Going forward, the Committee stressed that timely mobilization of financial inflows is essential to meet the external financing requirements and further strengthen FX buffers for the country to effectively respond to any external shocks and support sustainable economic growth.

Fiscal sector

Fiscal indictors continued to show improvement during July-March FY24. The primary surplus increased to 1.5% of GDP, while the overall deficit remained almost at last year’s level. A large part of this improvement reflected the impact of increase in tax and PDL rates, higher SBP profit, and lower energy sector subsidies. Considering there has been limited progress in addressing the structural weaknesses to broaden the tax base and initiate energy sector reforms, FY25 budgetary measures are also expected to be largely rate-based. In this backdrop, the Committee emphasized that fiscal consolidation through broadening the tax base and reforming loss-making public sector enterprises would help achieve fiscal sustainability on a more durable basis. This is also imperative to keep inflation on a downward trajectory and contain external account pressures.

Money and credit

The broad money (M2) growth decelerated to 15.2%YoY on May 24, 2024 from 17.1% as of end-March 2024. This reduction was primarily due to deceleration in growth of net domestic assets of the banking system. On the other hand, the growth contribution of net foreign assets in M2 remained positive.

From the liability side, deposits remained the mainstay in M2 growth, while currency in circulation growth decelerated. As a result, reserve money growth observed a steep decline from 10.0% to 4.3% during the period. The MPC noted that these developments in monetary aggregates are consistent with the tight monetary policy stance and have favorable implications for the inflation outlook.

Inflation outlook

Headline inflation decelerated to 11.8% in May 2024 from 17.3% in April. Besides the continued tight monetary policy stance, this sharp reduction was also driven by a sizeable decline in prices of wheat, wheat flour, and some other major food items, along with the downward adjustment in administered energy prices. Core inflation also decelerated to 14.2% from 15.6%. The Committee noted that the near-term inflation outlook is susceptible to risks emanating from the FY25 budgetary measures and future adjustments in electricity and gas tariffs. The MPC foresees a risk of inflation to rise significantly in July 2024 from current levels, before trending down gradually during FY25. The MPC also observed that sharp wheat price reductions have historically proved to be temporary. On balance, the Committee assessed that the current monetary policy stance remains appropriate to ensure that inflation stays on a downward trajectory.

 

 

US-Saudi Arabia to sign security treaty

The Biden administration is close to finalizing a treaty with Saudi Arabia that would commit the United States to help defend the Gulf nation as part of a deal aimed at encouraging diplomatic ties between Riyadh and Israel, the Wall Street Journal reported on Sunday.

The possible deal, widely telegraphed by US and other officials for weeks, is part of a wider package that would include a US-Saudi civil nuclear pact, steps toward the establishment of a Palestinian state and an end to the war in Gaza, where months of ceasefire efforts have failed to bring peace.

Approval of the treaty, which the WSJ said would be known as the Strategic Alliance Agreement, would require a two-thirds majority vote in the US Senate, a threshold that would be difficult to achieve unless the treaty were tied to Israeli-Saudi normalization.

The draft treaty is modeled loosely on Washington's mutual security pact with Japan, the newspaper cited US and Saudi officials as saying.

In exchange for the US commitment to help defend Saudi Arabia if it were attacked, the draft treaty would grant Washington access to Saudi territory and airspace to protect US interests and regional partners, the newspaper reported.

It is also intended to bind Riyadh closer to Washington by prohibiting China from building bases in the kingdom or pursuing security cooperation with Riyadh, the WSJ quoted officials as saying.

The White House, the US State Department and the Saudi embassy in Washington did not immediately respond to requests for comment.

 

Israel: Gantz quits Netanyahu government

According to Reuters, Israeli minister Benny Gantz announced his resignation from Prime Minister Benjamin Netanyahu's emergency government on Sunday, withdrawing the only centrist power in the embattled leader's far-right coalition amid a months-long war in Gaza.

The departure of Gantz's centrist party will not pose an immediate threat to the government. But it could have a serious impact nonetheless, leaving Netanyahu reliant on hardliners, with no end in sight to the Gaza war and a possible escalation in fighting with Lebanese Hezbollah.

Last month, Gantz presented Netanyahu with a June 8 deadline to come up with a clear day-after strategy for Gaza, where Israel has been pressing a devastating military offensive against the ruling Palestinian militant group Hamas. Netanyahu brushed off the ultimatum soon after it was given.

On Sunday, Gantz said politics was clouding fateful strategic decisions in Netanyahu's cabinet. Quitting while hostages were still in Gaza and soldiers fighting there was an excruciating decision, he said.

"Netanyahu is preventing us from advancing toward true victory," Gantz said in a televised news conference. "That is why we are leaving the emergency government today, with a heavy heart but with full confidence."

Netanyahu responded in a social media post, telling Gantz it was no time to abandon the battlefront.

With Gantz gone, Netanyahu would lose the backing of a centrist bloc that has helped broaden support for the government in Israel and abroad, at a time of increasing diplomatic and domestic pressure eight months into the Gaza war.

While his coalition remains in control of 64 of parliament's 120 seats, Netanyahu will now have to rely more heavily on the political backing of ultra-nationalist parties, whose leaders angered Washington even before the war and who have since called for a complete Israeli occupation of Gaza.

This would likely increase strains already apparent in relations with the United States and intensify public pressure at home, with the months-long military campaign still not achieving its stated goals - the destruction of Hamas and the return of more than 100 remaining hostages held in Gaza.

Polls have shown Gantz, a former army commander and defence minister, to be the most formidable political rival to Netanyahu, whose image as a security hawk was shattered by the October 07, 2023 attack by Hamas on Israel.

Warning that the conflict in Gaza could take years, he urged Netanyahu to agree on an election date in the autumn, to avoid further political infighting at a time of national emergency.

Gantz joined a unity government soon after October 07 as part of Netanyahu's inner war cabinet where he, Netanyahu and Defence Minister Yoav Gallant alone had votes.

On Sunday, Gantz described Gallant, who has sparred with Netanyahu and some ultra-nationalists ministers, as a brave leader and called on him 'to do the right thing,' though he did not elaborate on what that meant.

Far-right National Security Minister Itamar Ben-Gvir demanded Gantz's now vacant seat at the war cabinet soon after the resignation was announced.

Finance Minister Bezalel Smotrich said in a statement Gantz was giving Israel's enemies what they want.

Asked whether he was worried about his departure impacting Israel's standing abroad, Gantz said Gallant and Netanyahu both know "what should be done."

"Hopefully they will stick to what should be done and then it will be okay," he said.

 

Iran: Candidates for Presidential Election

Iran’s Guardian Council has approved six candidates for the upcoming presidential election scheduled for June 28, 2024. Qualified candidates will now have two weeks to campaign before the voting.

These include former Parliament Speaker Mohammad Bagher Ghalibaf and former nuclear negotiator Saeed Jalili, two high-profile conservative political figures.

Other candidates in the race include former lawmaker Masoud Pezeshkian, former minister Mostafa Pourmohamadi, Tehran Mayor Alireza Zakani, and former lawmaker Amir Hossein Ghazizadeh Hashemi.

The candidacy of former Vice President Eshaq Jahangiri, who was expected to be the top reformist contender, was rejected by the election supervisory body. Ali Larijani, a former Parliament Speaker believed to have the backing of the reformist camp, also failed to make the cut.

Both Jahangiri and Larijani were disqualified by the 12-member council in the 2021 presidential election when Abdolnasser Hemmati was the lone reformist challenger to Ebrahim Raisi.

Hemmati, who was again in the running this year, also had his candidacy rejected.

The candidacy of former President Mahmoud Ahmadinejad was also rejected by the Guardian Council.

Speculation is rife that Ghalibaf, who was re-elected as a parliament speaker late last month, will be the main conservative figure after the presidential debates, as he enjoys strong support from lawmakers.

Among reformists, Pezeshkian is likely to be the main contender.

The snap presidential vote is scheduled for June 28 following the death of President Raisi in a helicopter crash on May 19 in northwestern Iran.

Bangladesh apparel export to US takes a dip

Bangladesh suffered the highest negative growth among competitor countries in exporting readymade garments to the United States in the January-April period of 2024.

According to the US Department of Commerce’s Office of Textiles and Apparel data released on Thursday, the country’s apparel exports to the United States, the largest export destination for Bangladesh, in the first four months of 2024 declined by 14.44% to US$2.31 billion compared with those of US$2.70 billion in the same period of 2023.

At the same time, apparel imports by the US from Vietnam grew by 0.31%, while those from China declined by 4.42%, according to the OTEXA data.

The data showed that Vietnam overtook China to become the largest readymade garments exporter to the US in the January-April period of 2024.

Exporters observed that despite a recent increase in US demand for apparel, Bangladesh failed to capture a larger market share due to factors such as longer shipment times and higher production costs.

They said that buyers had been placing more orders with Vietnam and China recently, due primarily to shorter delivery times.

The data showed that the US apparel imports from China decreased to US$4.32 billion in January-April 2024, down from US$4.52 billion in the same period the previous year.

Garments imports from Vietnam increased to US$4.38 billion in the four months of 2024, up from US$4.37 billion in the corresponding period of the previous year.

The data also showed that the total US imports of readymade garments from the world in January-April of 2024 decreased by 6% to US$23.69 billion compared with those of US$25.20 billion in the same period of 2023.

Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, said that despite an uptick in apparel demand in the US market, Bangladesh struggled to capitalize on this increased demand.

He identified prolonged shipment times a key factor hindering Bangladesh’s ability to seize a larger share of the growing demand.

According to Hatem, Bangladesh’s shipment times have been steadily lengthening due to issues such as customs-related delays at ports and production slowdowns caused by gas and electricity shortages.

He said that while major apparel manufacturing countries like China and Vietnam had experienced negative export growth globally in recent times, most other countries, except Bangladesh, had begun to narrow this gap.

Hatem pointed out that Vietnam had already shifted to a positive trajectory in exporting RMG to the US market.

“In Bangladesh, our factories are operating up to 70% capacity utilization due to energy shortages, prompting buyers to redirect orders to China and Vietnam for quicker deliveries,” he said.

Hatem also claimed that many factories struggled to accept orders at the prices offered by buyers due to rising utility costs and increased workers’ wages.

The OTEXA data showed that India’s readymade garments exports to the US market in the four months of 2024 declined by 5.02% to US$1.66 billion compared with those of US$1.75 billion in the same period of the previous year.

Readymade garments imports by the US from Indonesia in the four months of 2024 decreased by 8.46% to US$1.38 billion compared with those of US$1.51 billion in the same period of 2023.

The US apparel imports from Cambodia in January-April of 2024 increased by 7.92% to US$1.03 billion compared with those of US$951.93 million in the same period of 2023, the data showed.