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 Gold prices hit a new all-time high on Thursday, and there’s still room for it to surge as several countries are on a gold-buying spree.

Prices could rise to $2,300 per ounce in the second half of 2024, especially against the backdrop of expectations that the U.S.

Strong physical demand for gold is also fueled by its appeal as a safe-haven asset and investors

 looking to diversify amid lackluster performances in other asset classes.

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 tradingat $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 central bank top buyer

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.

Made with Flourish

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.

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