Gold costs have been hitting new highs — and the rally is way from over

The rally in gold continues with costs hitting an all-time excessive on Thursday — and there is room for it to rise extra as central banks proceed to buy bullion in file quantities. 

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, Aakash Doshi, Citi’s North America head of commodities analysis, instructed CNBC. Gold is presently buying and selling at $2,203.

Gold costs are inclined 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 similar to bonds, which might yield weaker returns in a low-interest-rate setting. 

Macquarie has additionally forecast gold costs to notch new highs within the second half of the yr. 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” of their word dated March 7.

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

These purchases have strengthened gold costs regardless of excessive rates of interest and a robust greenback, market watchers instructed CNBC.

Larger charges have a tendency to scale 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.

Sturdy bodily demand for gold can also 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,” Doshi.

Amongst central banks, the Folks’s Financial institution of China was the most important purchaser of gold in 2023. China’s weak economic system and embattled actual property 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 client of gold, snapping up 130 tons of bullion in 2023.

Challenges of the Russia-Ukraine warfare “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 introduced plans to purchase 100 tons of gold in a bid to spice up the nation’s monetary safety, in accordance with native media studies.

Singapore recorded the third highest internet gold purchases in 2023, pushed by purchases by the Financial Authority of Singapore (MAS), which purchased 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 continuing Russia-Ukraine battle.

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

That stated, India’s funding in gold bars and cash grew 7% yr on yr. 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 best month-to-month buy since July 2022.

Apart from China and India, Turkey’s gold demand final yr virtually doubled that of 2022, in accordance with WGC information. 

Unrelenting client inflation, restricted out there different funding and home political uncertainty in the course of the presidential elections final yr drove Turkey’s demand for the yellow steel.

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

Turkish annual client value inflation lately surged to 67.07% in February. The Turkish lira misplaced 40% of its worth in opposition to the greenback up to now yr, and is presently buying and selling at a file low in opposition to the greenback.