Gold prices have hit record highs. Here’s why they could rally further

Larger charges have a tendency to cut back the attraction of gold in contrast with bonds because it doesn’t pay any curiosity, whereas a stronger greenback erodes the sheen of greenback-priced bullion for holders of different currencies.

“Central banks, who’ve purchased historic ranges of gold over the previous two years, proceed to be robust consumers in 2024 as effectively,” World Gold Council International Head of Central Banks Shaokai Fan stated. 

Sturdy bodily demand for gold can be fueled by its attraction as a safe-haven asset amid geopolitical uncertainties.

“Prior to now decade, Russia and China have been the 2 largest consumers. Nevertheless, central financial institution purchases lately have diversified,” Aakash Doshi, Citi’s North America head of commodities analysis, advised CNBC.

China is the main driver for each shopper demand and central financial institution gold purchases, and the nation’s not more likely to decelerate.

Amongst central banks, the Individuals’s Financial institution of China was the most important purchaser of gold in 2023. China’s weak financial system and embattled real estate sector additionally drove extra traders towards the safe-haven asset, with particular person gold funding remaining sturdy, WGC stated.

Poland’s central financial institution was the second-largest internet shopper of gold, snapping up 130 tons of bullion in 2023.

Challenges of the Russia-Ukraine struggle “excellent subsequent door” drives Poland’s want for stability, stated Wheaton Treasured Metals CEO Randy Smallwood.

Poland’s central financial institution governor Adam Glapiński in 2021 had announced plans to buy 100 tons of gold in a bid to spice up the nation’s monetary safety, according to local media reports.

Singapore recorded the third highest internet gold purchases in 2023, pushed by purchases by the Financial Authority of Singapore (MAS), which bought 76.51 tons.

Whereas MAS didn’t disclose the rationale for the funding choice, Fan surmised that central banks throughout the board have been cautious of the geopolitical dangers from the continued Russia-Ukraine battle.

“They’ve most likely been adjusting reserve allocations in accordance to their views on danger,” he stated. 

Stronger gold costs had been additionally pushed by retail purchases of bijou, bars and cash.

On high of the Individuals’s Financial institution of China shopping for probably the most gold amongst the world’s central banks, the nation additionally recorded the best quantity of retail gold purchases.

“On the retail shopper stage, China was a significant component in robust demand for gold final 12 months as people moved into gold to diversify from different asset courses,” Fan stated. 

In response to information from the World Gold Council, China overtook India to develop into the world’s largest gold jewellery purchaser in 2023. Chinese language shoppers purchased 603 tons of gold jewellery final 12 months, a ten% enhance from 2022.

Alongside China, shopper demand for gold in India can be one of many world’s greatest, stated Smallwood, particularly throughout India’s marriage ceremony season, which runs usually from October to December, and between January and March.

“Gold is all the time the best type of worth present which you could really give somebody inside India. It is an actual massive a part of the marriage season,” he stated.

Whereas India’s jewellery demand ought to proceed to be vital, dearer gold might put some dent in that spending, WGC stated. India’s gold jewellery consumption demand dipped 6% to 562.3 tons in 2023 from a 12 months earlier.

That stated, India’s funding in gold bars and cash grew 7% 12 months on 12 months. The nation’s central financial institution demand for gold additionally continues to be robust, with the Reserve Financial institution of India buying 8.7 tons of gold in January, marking the highest monthly purchase since July 2022.

Except for China and India, Turkey’s gold demand final 12 months virtually doubled that of 2022, in accordance with WGC data. 

Unrelenting shopper inflation, restricted accessible different funding and home political uncertainty in the course of the presidential elections final 12 months drove Turkey’s demand for the yellow metallic.

“Turkey recorded robust retail demand as effectively, with traders piling into gold in the course of the presidential election final 12 months to guard in opposition to potential volatility within the Turkish lira,” Fan added.

Turkish annual shopper value inflation recently surged to 67.07% in February. The Turkish lira misplaced 40% of its worth in opposition to the greenback prior to now 12 months, and is presently buying and selling at a report low in opposition to the greenback.

With a persistently sturdy demand for the bullion, gold costs have extra room to rally.

Citi’s Doshi believes that costs might rise to $2,300 per ounce within the second half of 2024, particularly in opposition to the backdrop of expectations that the U.S. Federal Reserve might lower charges within the second half of 2024. It’s currently trading at $2,203.

Gold costs are likely to share an inverse relationship with rates of interest. As rates of interest dip, gold turns into extra interesting in comparison with fixed-income belongings reminiscent of bonds, which might yield weaker returns in a low-interest-rate atmosphere. 

Different market watchers echo the identical. Macquarie has forecast gold costs to notch new highs within the second half of the 12 months. Whereas acknowledging that bodily purchases of gold have given costs a raise, Macquarie’s strategists attributed the current $100 spike in costs to “vital futures shopping for” in a current word.