Jakarta, CNBC Indonesia – The price of domestic gold bullion has continued to shoot up lately following the movement of world gold prices. In fact, do not rule out the price will be more expensive this year.
According to data from PT Aneka Tambang Tbk (Antam’s metalmulia.com) website, the price of gold bars on Saturday (14/1), the price of gold bars per 1 gram was at IDR 1,043,000, a slight increase from yesterday’s gold price, which was IDR 1,042,000 per 1 gram.
The smallest gold price unit measuring 0.5 grams is currently at IDR 571,500. Meanwhile, the price of gold for 10 grams is IDR 9,925,000 and the largest unit, namely 1,000 grams (1 kg), is priced at IDR 983,600,000.
If you look at the data for the past week, Antam’s gold price has moved in the range of IDR 1,032,000 – 1,043,000. In the past month, the price has tended to fluctuate in the price range of IDR 1,013,000 – 1,043,000.
The price of gold bullion started to rise since November last year. At the end of October, it was priced at IDR 939,000/stick, meaning that until the current position, the price had increased by around 11%.
This increase is in line with world gold which today is near US$ 1,900/troy ounce. If seen since November, world gold prices have shot up around 16%.
The world gold price is the main factor driving domestic gold bullion.
In addition, there are other factors that influence, namely the rupiah exchange rate and supply-demand. These two factors can make the percentage decrease/increase in the price of gold bullion larger/smaller than that of world gold, sometimes even in the opposite direction.
The world gold price itself is expected to skyrocket this year.
Swiss Asia Capital’s chief investment officer, Juerg Kiener, gave his extreme projection. According to him, the price of gold will fly up to US$ 4,000 per troy ounce in 2023.
This projection is based on a recession and easing of policies by the United States (US) central bank or The Federal Reserve (The Fed).
“Gold will not only rise 10-20% but will be very high. The price of gold could penetrate US$ 2,500-4,000 per troy ounce next year (2023),” Kiener said, quoted by CNBC International.
Extreme projections were also issued by Saxo Bank. The Danish bank projects that the price of the precious metal will fly to US$ 3,000 per troy ounce.
To note, one troy ounce is equivalent to 31.1 grams. If the world gold price reaches US$ 4,000/troy ounce, to find the price per gram, divide by 31.1. The result is US$ 128.6 per gram.
Assuming that Bank Indonesia’s middle rate on Thursday (12/1/2023) is IDR 15,366/US$, then the world gold price if converted to rupiah can reach IDR 1,976,334/gram.
This means that if the world gold price exceeds US$ 4,000/troy ounce, then the price of gold bullion in the country can reach Rp. 2 million/gram. Again, this also depends on the rupiah exchange rate later, as well as supply-demand which can make the price higher or lower.
As Kiener mentioned, one of the things that will boost world gold prices is the Fed, which will cut interest rates this year.
Market participants have also seen this possibility after the release of a series of economic data.
Inflation in the United States continues to decline, the market now estimates that the Fed will cut interest rates at the end of 2023.
According to the CME Group’s FedWatch tool the market sees the Fed raising interest rates by 25 basis points respectively in February and March with probabilities of 94% and 76%. With this projection, the Fed’s interest rate peak will be at 4.75% – 5%.
Moreover, the same tool shows the Fed is expected to cut interest rates by 25 basis points in September with a probability of 34%, as well as a month after. So at the end of the year the market sees the Fed’s interest rate at 4.25% – 4.5%.
This projection could occur if inflation continues to decline. Inflation based on the consumer price index (CPI) in the US in December 2022 was reported to have grown 6.5% year-on-year (yoy), much lower than the previous 7.1%. The CPI is also the lowest since October 2021.
Core CPI excluding the energy and food sectors also fell to 5.7% from 6% previously, and was at its lowest level since December 2021.
The Fed actually uses inflation based on personal consumption expenditure (PCE) as a reference for setting monetary policy. PCE inflation is usually released at the end of the month, and has also shown a decline.
In November, PCE inflation recorded growth of 5.5% (yoy) in November last year, down from 6.1% (yoy) in the previous month. Meanwhile, core PCE inflation, which is the Fed’s main benchmark, fell to 4.7% (yoy) from the previous 5% (yoy) and was at its lowest level since July 2022.
UBS chief economist, Arend Kapteyn, even predicts the Fed will cut interest rates starting in July.
“We think they (the Fed) will cut interest rates this year. We think the first one will be in July,” Kapteyn said as reported by Market Insider, Tuesday (10/1/2023).
Kapteyn’s projection is faster than market expectations. Kapteyn predicts that core PCE will continue to fall to 2.1% at the end of this year.
“Our difference with the Fed is they see core PCE at 3.5% at the end of 2023, we’re looking at 2.1%,” Kapteyn said.
Reinforcing expectations the Fed will cut interest rates more quickly, the US construction sector contracted for the first time in two and a half years.
The Institute for Supply Management (ISM) last Friday reported that the US service sector contracted for the first time in two and a half years.
ISM reported that the purchasing managers’ index (PMI) for services fell to 49.6, a departure from 56.5 in the previous month. A reading below 50 is contraction, while above it is expansion.
This contraction is a sign of the darkening of the US economy in 2023, a recession is already looming.
To note, the service sector is the largest contributor to US gross domestic product (GDP) based on business sector. Its contribution is never less than 70%.
With a recession that is certain to occur and inflation continues to decline, the opportunity for the Fed to cut interest rates in the middle of this year is certainly open.
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(rob/ayh)
