The surge in gold’s value persists, marking a new pinnacle on Thursday, with experts foreseeing further ascent fueled by the vigorous bullion acquisitions by central banks.
“Prices could escalate to $2,300 per ounce in the latter half of 2024, particularly amid speculations of potential rate reductions by the U.S. Federal Reserve,” highlighted Aakash Doshi, Citi’s North America head of commodities research, in a conversation with CNBC. Presently, gold commands a price of $2,203.
Historically, gold prices and interest rates exhibit an inverse correlation. As interest rates decline, gold gains allure vis-à-vis fixed-income assets like bonds, which tend to yield diminished returns in a low-rate milieu.
Macquarie has similarly anticipated a fresh surge in gold prices during the latter part of the year. While acknowledging the impetus provided by tangible gold purchases, Macquarie’s strategists attributed the recent $100 surge in prices to “significant futures buying,” as outlined in their March 7 memo.
“Central banks, who have bought historic levels of gold over the past two years, continue to be strong buyers in 2024 as well,” emphasized Shaokai Fan, Global Head of Central Banks at the World Gold Council.
These acquisitions have bolstered gold prices despite the backdrop of high-interest rates and a robust dollar, according to market analysts speaking to CNBC.
Heightened interest rates typically diminish gold’s allure compared to bonds since gold doesn’t yield any interest, while a robust dollar diminishes the attractiveness of dollar-denominated gold for holders of other currencies.
Moreover, robust physical demand for gold is sustained by its reputation as a safe-haven asset amid geopolitical uncertainties.
“In the past decade, Russia and China have been the two largest buyers. However, central bank purchases in recent years have diversified,” noted Doshi.
China central bank’s top buyer
China stands out as the primary force behind both consumer demand and central bank acquisitions of gold, with no signs of slowing down.
Among the central banks, the People’s Bank of China emerged as the foremost purchaser of gold in 2023.
The nation’s sluggish economy and challenges within its real estate sector further steered investors towards this safe-haven asset, while individual investments in gold remained robust, as outlined by the World Gold Council (WGC).
Poland’s central bank followed closely as the second-largest net consumer of gold, securing 130 tons of bullion in 2023.
The ongoing challenges stemming from the Russia-Ukraine conflict, situated nearby, have intensified Poland’s pursuit of stability, according to Wheaton Precious Metals CEO Randy Smallwood.
Reports from local media indicate that Poland’s central bank governor, Adam Glapiński, unveiled plans in 2021 to acquire 100 tons of gold as part of an effort to bolster the nation’s financial resilience.
Singapore ranked third in terms of net gold acquisitions in 2023, attributed to purchases made by the Monetary Authority of Singapore (MAS), acquiring 76.51 tons of gold.
Although MAS did not publicly disclose the rationale behind its investment decision, Fan speculated that central banks globally have been cautious due to the geopolitical tensions arising from the Russia-Ukraine conflict.
“They have likely been revising their reserve allocations based on their perceptions of risk,” he commented.
Retail purchases
The surge in gold prices was further propelled by retail purchases encompassing jewelry, bars, and coins.
In addition to the People’s Bank of China emerging as the foremost purchaser among central banks worldwide, the nation also witnessed the highest volume of retail gold acquisitions.
“At the retail consumer level, China significantly contributed to robust gold demand last year as individuals sought to diversify away from other asset classes,” noted Fan.
According to statistics from the World Gold Council, China surpassed India to claim the title of the world’s largest purchaser of gold jewelry in 2023. Chinese consumers acquired 603 tons of gold jewelry, marking a 10% increase from the previous year.
Alongside China, India stands as one of the globe’s primary consumer markets for gold, particularly during the nation’s wedding season, typically spanning from October to December and from January to March.
“Gold remains the most prized gift during India’s wedding festivities. It holds significant cultural and traditional value during this period,” explained Smallwood.
Although India’s demand for jewelry is anticipated to remain substantial, the escalation in gold prices could potentially dampen consumer spending in this sector, according to insights from the World Gold Council (WGC).
India experienced a 6% decline in gold jewelry consumption demand, totaling 562.3 tons in 2023 compared to the preceding year.
However, India’s investment in gold bars and coins witnessed a 7% year-on-year growth. Moreover, the nation’s central bank exhibited robust demand for gold, with the Reserve Bank of India procuring 8.7 tons of gold in January, marking the highest monthly acquisition since July 2022.
In addition to China and India, Turkey’s demand for gold surged significantly last year, nearly doubling that of 2022, as documented by WGC records.
The escalation in consumer inflation, coupled with limited alternative investment options and domestic political uncertainties during the presidential elections, fueled Turkey’s appetite for the precious metal.
“Turkey witnessed robust retail demand too, with investors flocking to gold during last year’s presidential election to shield themselves against potential volatility in the Turkish lira,” Fan highlighted.
Turkish annual consumer price inflation skyrocketed to 67.07% in February. Over the past year, the Turkish lira depreciated by 40% against the dollar, currently resting at a historic low against the greenback.
