Gold continues to rise as prices reach all-time highs on Thursday, with central banks likely to continue buying bullion in record quantities. Gold is currently trading at $2,203 per ounce. Commenting on this, Akash Doshi, head of North American commodities research at Citi, said to the American network CNBC, “Prices may rise to $2,300 per ounce in the second half of 2024, especially… Against the backdrop of expectations that the US Federal Reserve may lower interest rates in the second half of 2024.”
Gold prices tend to share an inverse relationship with interest rates. As interest rates fall, gold becomes more attractive compared to fixed-income assets such as bonds, which would generate weaker returns in a low interest rate environment. For its part, Macquarie Financial Group also expected gold prices to record new high levels in the second half of the year. Despite acknowledging that physical purchases of gold led to higher prices, strategists at Macquarie attributed the recent $100 rise in prices to large purchases of futures contracts in their memo dated March 7.
“Central banks, which have bought historic levels of gold over the past two years, will remain strong buyers in 2024 as well,” said Xukai Fan, Global Head of Central Banks at the World Gold Council. Market observers told the American News Network that these purchases boosted gold prices despite the rise in interest rates and the strength of the dollar. Raising interest rates reduces the attractiveness of gold
High interest rates tend to make gold less attractive compared to bonds because it pays no interest, while a stronger dollar erodes the luster of gold bullion priced in US currency for holders of other currencies. Strong physical demand for gold is also fueled by its appeal as a safe-haven asset amid geopolitical uncertainty. Market watchers added: “In the past decade, Russia and China were the largest buyers, however, the central bank’s purchases have diversified in recent years.
The Chinese central bank is the largest buyer China is the main driver of both consumer demand and central bank purchases of gold, and the country is unlikely to slow down in purchasing the yellow metal. Among central banks, the People’s Bank (China’s central bank) was one of the major buyers of gold in 2023. Regarding this, the World Gold Council (WGC) said, “The weak economy in China and the beleaguered real estate sector have pushed more investors towards safe assets, with individual investment in gold remaining strong.”
The Polish Central Bank was the second largest net consumer of gold, taking possession of 130 tons of bullion in 2023.