Gold Hits All-Time High with Potential for $2,300/oz Amid Central Bank Purchases

Gold prices hit all-time high with potential to rise further as central banks purchase record amounts. Expectations of U.S. rate cut could push prices to $2,300. Geopolitical uncertainties drive global purchases.

Gold prices reached an all-time high on Thursday, showing a continued upward trend. Analysts are predicting that the rally will persist, with expectations that prices could climb to $2,300 per ounce in the second half of 2024.

Rising Prices Against the Backdrop of Economic Expectations

Aakash Doshi, Citi's North America head of commodities research, emphasized the potential for gold prices to surge in the coming years. This projection is especially backed by the anticipation of the U.S. Federal Reserve cutting interest rates in the latter part of 2024. Currently, gold is trading at $2,203 per ounce.

Relationship Between Gold and Interest Rates

Gold prices often exhibit an inverse correlation with interest rates. When interest rates decline, gold becomes more attractive in comparison to fixed-income assets like bonds. This is due to the weaker returns yielded by bonds in a low-interest-rate environment.

Central Banks' Increased Gold Purchases

Central banks have been purchasing gold in historic amounts over the past few years, further bolstering the demand and price of the precious metal. The World Gold Council Global Head of Central Banks, Shaokai Fan, highlighted the consistent strength of central bank purchases, despite the presence of high interest rates and a strong dollar in the market.

Factors Fueling Gold's Appeal

Several factors are contributing to the sustained demand for gold, including its perceived status as a safe-haven asset amid geopolitical uncertainties. Additionally, strong physical demand for gold is being driven by its attractiveness as a means of diversification and protection against economic instability.

Key Contributors to Gold Demand

China has emerged as a significant driver of both consumer demand and central bank gold purchases. The country's continuous strong momentum in this regard indicates a sustained interest in gold as a strategic asset.

Gold Purchases by Different Countries

Notably, the People's Bank of China was the leading purchaser of gold in 2023, underscoring its proactive approach to reinforcing its gold reserves. Similarly, Poland and Singapore also recorded substantial net gold purchases, reflecting a broader trend of central banks worldwide seeking to fortify their reserves amidst ongoing geopolitical tensions.

Gold Demand in India

India represents another significant consumer of gold, particularly during the traditional wedding season. While the country experienced a marginal decline in gold jewelry consumption demand, there was a notable increase in investment in gold bars and coins. The Reserve Bank of India also exhibited robust demand, making significant gold purchases in January 2024.

Turkey's Escalating Gold Demand

During the presidential elections in Turkey, the demand for gold surged due to unrelenting consumer inflation and domestic political uncertainty. This wave of heightened interest in gold extended to both retail and institutional investors, indicating a widespread desire to safeguard against potential economic volatility in the region.

Economic Indicators in Turkey

Amidst soaring consumer price inflation and a drastic decline in the value of the Turkish lira against the dollar, the country's gold demand nearly doubled in 2023 compared to the previous year. This underscores the significant role that gold is playing as a hedge against economic instability within the Turkish market.

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