Gold prices have been hitting record highs — here’s why the rally is far from over

The
rally
in
gold
continues
with
prices
hitting
an
all-time
high
on
Thursday
—
and
there’s
room

for
it
to
rise
more
as
central
banks
continue
to
purchase
bullion
in
record
amounts. 

Prices
could
rise
to
$2,300
per
ounce
in
the
second
half
of
2024,
especially
against
the
backdrop
of
expectations
that
the
U.S.
Federal
Reserve
could
cut
rates
in
the
second
half
of
2024,
Aakash
Doshi,
Citi’s
North
America
head
of
commodities
research,
told
CNBC.
Gold
is


currently
trading
at
$2,203.

Gold
prices
tend
to
share
an
inverse
relationship
with
interest
rates.
As
interest
rates
dip,
gold
becomes
more
appealing
compared
to
fixed-income
assets
such
as
bonds,
which
would
yield
weaker
returns
in
a
low-interest-rate
environment. 

Macquarie
has
also
forecast
gold
prices
to
notch
new
highs
in
the
second
half
of
the
year.
While
acknowledging
that
physical
purchases
of
gold
have
given
prices
a
lift,
Macquarie’s
strategists
attributed
the
recent
$100
spike
in
prices
to
“significant
futures
buying”
in
their
note
dated
March
7.

“Central
banks,
who
have
bought
historic
levels
of
gold
over
the
past
two
years,
continue
to
be
strong
buyers
in
2024
as
well,”
World
Gold
Council
Global
Head
of
Central
Banks
Shaokai
Fan
said. 

These
purchases
have
strengthened
gold
prices
despite
high
interest
rates
and
a
strong
dollar,
market
watchers
told
CNBC.

Higher
rates
tend
to
reduce
the
appeal
of
gold
compared
with
bonds
as
it
does
not
pay
any
interest,
while
a
stronger
dollar
erodes
the
sheen
of
greenback-priced
bullion
for
holders
of
other
currencies.

Strong
physical
demand
for
gold
is
also
fueled
by
its
appeal
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,”
Doshi.

China
is
the
leading
driver
for
both
consumer
demand
and
central
bank
gold
purchases,
and
the
country’s
not
likely
to
slow
down.

Among
central
banks,
the
People’s
Bank
of
China
was
the
largest
buyer
of
gold
in
2023.
China’s
weak
economy
and

embattled
real
estate
sector
also
drove
more
investors
toward
the
safe-haven
asset,
with
individual
gold
investment
remaining
robust,
WGC
said.

Poland’s
central
bank
was
the
second-largest
net
consumer
of
gold,

snapping
up
130
tons
of
bullion
in
2023.

Challenges
of
the
Russia-Ukraine
war
“just
right
next
door”
drives
Poland’s
desire
for
stability,
said
Wheaton
Precious
Metals
CEO
Randy
Smallwood.

Poland’s
central
bank
governor
Adam
Glapiński
in
2021
had

announced
plans
to
buy
100
tons
of
gold
in
a
bid
to
boost
the
country’s
financial
security,

according
to
local
media
reports.

Singapore
recorded
the
third
highest
net
gold
purchases
in
2023,
driven
by
purchases
by
the
Monetary
Authority
of
Singapore
(MAS),
which

bought
76.51
tons.

While
MAS
did
not
disclose
the
reason
for
the
investment
decision,
Fan
surmised
that
central
banks
across
the
board
have
been
wary
of
the
geopolitical
risks
from
the
ongoing
Russia-Ukraine
conflict.

“They
have
probably
been
adjusting
reserve
allocations
in
accordance
to
their
views
on
risk,”
he
said. 

Stronger
gold
prices
were
also
driven
by
retail
purchases
of
jewelry,
bars
and
coins.

On
top
of
the
People’s
Bank
of
China buying
the
most
gold
amongst
the
world’s
central
banks,
the
country
also
recorded
the
highest
amount
of
retail
gold
purchases.

“At
the
retail
consumer
level,
China
was
a
major
factor
in
strong
demand
for
gold
last
year
as
individuals
moved
into
gold
to
diversify
from
other
asset
classes,”
Fan
said. 

According
to
data
from
the
World
Gold
Council,
China
overtook
India
to
become
the
world’s
largest
gold
jewelry
buyer
in
2023.
Chinese
consumers
bought
603
tons
of
gold
jewelry
last
year,
a
10%
increase
from
2022.

Alongside
China,
consumer
demand
for
gold
in
India
is
also
one
of
the
world’s
biggest,
said
Smallwood,
especially
during
India’s
wedding
season,
which
runs
typically
from
October
to
December,
and
between
January
and
March.

“Gold
is
always
the
highest
form
of
value
gift
that
you
can
actually
give
someone
within
India.
It’s
a
real
big
part
of
the
wedding
season,”
he
said.

While
India’s
jewelry
demand
should
continue
to
be
significant,
more
expensive
gold
could
put
some
dent
in
that
spending,
WGC
said.
India’s
gold
jewelry
consumption
demand
dipped
6%
to
562.3
tons
in
2023
from
a
year
earlier.

That
said,
India’s
investment
in
gold
bars
and
coins
grew
7%
year
on
year.
The
country’s
central
bank
demand
for
gold
also
continues
to
be
strong,
with
the
Reserve
Bank
of
India
purchasing

8.7
tons
of
gold
in
January,
marking
the
highest
monthly
purchase
since
July
2022.

Aside
from
China
and
India,
Turkey’s
gold
demand
last
year
almost
doubled
that
of
2022,
according
to
WGC
records. 

Unrelenting
consumer
inflation,
limited
available
alternative
investment
and
domestic
political
uncertainty
during
the
presidential
elections
last
year
drove
Turkey’s
demand
for
the
yellow
metal.

“Turkey
recorded
strong
retail
demand
as
well,
with
investors
piling
into
gold
during
the
presidential
election
last
year
to
protect
against
potential
volatility
in
the
Turkish
lira,”
Fan
added.

Turkish
annual
consumer
price
inflation

recently
surged
to
67.07%
in
February.
The
Turkish
lira
lost
40%
of
its
value
against
the
dollar
in
the
past
year,
and
is
currently
trading
at
a
record
low
against
the
dollar.