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Fri, April 12, 2024

Gold: Summiting New Highs

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Gold has surpassed the all-time high level of $2,074.89 per ounce recorded during the pandemic phase of 2020. Registering $2,080.07 on May 3, 2023, the bullion has exceeded expectations of the markets with forecasts on the lookout for further highs soon. Gold had begun 2023 at $1,822.79 per ounce and with each month climbed towards new highs finally culminating with a fresh new all-high in May. The yellow metal rose on the back of a resurgent demand from China coupled with fears over the health of regional US banks adding fuel to the six-month rally in precious metals.

Rising Chinese Demand

After Beijing lifted its zero-Covid policies, consumers in the economy rushed to purchase more jewellery, bars and coins in the first three months of the year according to the World Gold Council (WGC). The report stated that the demand from China regained ground, reaching 198 tonnes in the first three months of 2023 due to unfettered consumer activity after lockdown restrictions were lifted. The demand in China went up by nearly 16% as per the report.

US Banking Crisis

The failure of three regional US banks has prompted traders to turn to the yellow metal which acts as a store of value in uncertain times. The latest episode of a banking crisis in which a regional US bank PacWest said it was exploring a potential sale to secure its future, pushed traders on the brink of scaling a new all-time high in the bullion trades. The rush towards gold procurement has been given further impetus by suggestions from the US Federal Reserve that the interest rate hike announcements could be tapered for now. The expectations of the interest rate hikes would only lessen the attraction of gold for traders as the participants would miss out on the yield of interest-bearing bonds.

Increased Central Bank Buying

In a surprising move, central banks around the world have purchased a record 1,087 tonnes of gold since last year. In a move to counterbalance their reliance on the US dollar, non-western organisations bought tonnes of gold after the US weaponised the greenback in its sanctions against Russia. The buying activity from central banks has extended into the year with the numbers registering a record 228 tonnes of gold in the first quarter of 2023 as per the quarterly report of World Gold Council. Compared to the purchase of 83 tonnes in the same period last year, the central banks of Singapore, China and Turkey were the top buyers while the Reserve Bank of India added seven tonnes to its reserves during the first three months of 2023.

Rising Supply

In the first quarter of 2023, there was a slight increase on the supply side to 1,174 tonnes benefitting from a 2% growth in mine production and a 5% rise in recycling driven by the higher gold price. The report further stated that the bar and coin investment inclined by 5% to 302.4 tonnes compared to 287.7 tonnes registered during the same period in 2022.

Bar and Coin Demand

The bar and coin demand from the US hit 32 tonnes in the first three months, the highest level since 2010. This demand was driven by recession fears amidst the banking turmoil in the US. This growth helped offset weakness in the European region, particularly Germany which observed a drop of 73%. In other notable news, jewellery performance was relatively flat in the first quarter at 477.9 tonnes compared to 475.3 tonnes in the same period of 2022.

2023 Outlook

The World Gold Council stated that ‘we continue to see healthy upside for investment this year’ despite the first-quarter declines in the demand for gold. The council said that the global gold ETF demand is in dire need of a catalyst to observe meaningful gains. However, it added that ‘we expect positive demand and ETFs to retain significant upside potential from recession risk and waning interest headwinds’. Meanwhile, the WGC stated that the bar and coin demand will continue at a good pace with positive sales in the US, Middle East and South East Asia countering the below-average demand in Europe and India. The WGC further added it expects more robust central bank buying although below the 2022 record levels. In hindsight, the central banks purchased 1,079 tonnes of the yellow metal last year. However, the World Gold Council said that the picture is more muted. A slowdown in global growth will hit demand as the year progresses with the drawdowns in the inventory and weak consumer demand weighing on the sales equation. It’s gearing up for an interesting showdown in 2023 for gold aficionados! READ ALSO:  
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MARCH 2024

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