People browse gold jewelry in Istanbul.
Burakkara | Getty Images News | Getty Images
Gold prices still have room to rise after hitting record highs earlier this month as multiple central banks continue to buy gold in record amounts.
Market observers told CNBC that these purchases have pushed gold prices higher despite high interest rates and a strong dollar.
Higher interest rates tend to make gold less attractive compared to bonds because it doesn’t pay any interest, while a stronger dollar makes dollar-denominated gold less attractive to holders of other currencies.
“Central banks have purchased historic levels of gold over the past two years and will remain strong buyers in 2024,” said Fan Shaokai, global central bank president of the World Gold Council.
Strong physical demand for gold has also been driven by its appeal as a safe-haven asset amid geopolitical uncertainty.
“Russia and China have been the two largest buyers over the past decade. However, central bank buying has diversified in recent years,” Aakash Doshi, head of commodities research for North America at Citi, told CNBC.
China’s central bank is the largest buyer
China is the main driver of consumer demand and central bank gold buying, and the country’s growth is unlikely to slow.
Among central banks, the People’s Bank of China is the largest buyer of gold in 2023.China’s weak economy and The troubled real estate industry has also prompted more investors to turn to safe-haven assets, and personal gold investment remains strong, The World Gold Council said.
Poland’s central bank is the second largest net consumer of gold, Snap up 130 tons of gold bars 2023.
Randy Smallwood, chief executive of Wheaton Precious Metals, said the challenge of the Russia-Ukraine war “near doorstep” fueled Poland’s desire for stability.
Adam Glapiński, Governor of the Central Bank of Poland in 2021 Announces plan to buy 100 tons of gold To enhance the country’s financial security, According to local media reports.
Singapore ranked third in net gold purchases in 2023, driven by purchases by the Monetary Authority of Singapore (MAS). Purchase 76.51 tons.
While the MAS did not reveal the reasons for the investment decision, Fan speculated that central banks are wary of geopolitical risks posed by the ongoing Russia-Ukraine conflict.
“They may have been adjusting reserve allocations based on their perception of risk,” he said.
retail purchasing
The strength in gold prices was also driven by retail purchases of jewellery, bars and coins.
The People’s Bank of China is not only the largest central bank buyer of gold in the world, but also the country with the highest retail gold purchases.
“At the retail consumer level, China was a major factor in strong gold demand last year as individuals turned to gold to diversify into other asset classes,” Fan said.
Data from the World Gold Council shows that China will surpass India to become the world’s largest buyer of gold jewelry in 2023. Chinese consumers purchased 603 tons of gold jewelry last year, an increase of 10% from 2022.
Smallwood said that like China, India’s gold consumer demand is one of the largest in the world, especially during India’s wedding season, which is usually October to December and January to March.
“Gold is always the most valuable gift that can be given to someone in India. It is an important part of the wedding season,” he said.
A woman buys jewelry in a showroom in New Delhi, India.
Sonu Mehta | Hindustan Times | Getty Images
The World Gold Council said that while jewelery demand in India will continue to remain strong, rising gold prices may undermine this spending to some extent. In 2023, India’s gold jewelry consumer demand dropped 6% from the same period last year to 562.3 tons.
Despite this, investment in gold bars and coins in India increased by 7% year-on-year.Demand for gold from the country’s central bank also continues to be strong, with the Reserve Bank of India buying gold Gold purchases in January reached 8.7 tons, the highest purchase volume in a single month From July 2022.
Excluding China and India, Turkey’s gold demand last year was almost double what it will be in 2022, according to World Gold Council records.
Demand for gold in Turkey has been fueled by ongoing consumer inflation, limited alternative investments and domestic political uncertainty during last year’s presidential election.
Turkish lira hits record low against dollar
Fan added: “Turkey’s retail demand is also strong, and investors rushed to buy gold during last year’s presidential election to protect against potential volatility in the Turkish lira.”
Turkey’s consumer price inflation rate recently surged to 67.07% in February. The Turkish lira has fallen 40% against the U.S. dollar over the past year and is currently at a record low against the U.S. dollar.
How much can gold shine?
As demand for gold continues to be strong, gold prices have more room to rise.
Citi’s Dorsey believes prices could rise to $2,300 an ounce in the second half of 2024, especially amid expectations that the Federal Reserve may cut interest rates in the second half of 2024. currently trading $2,203.
Gold prices tend to have an inverse relationship with interest rates. As interest rates fall, gold becomes more attractive compared to fixed-income assets such as bonds, whose returns decline in a low-rate environment.
Other market watchers agree. Macquarie expects gold prices to reach new highs in the second half of this year. Macquarie strategists acknowledged that physical buying of gold has pushed prices higher, but in a recent report attributed the recent $100 rise in gold prices to “significant futures buying.”
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