The rally in gold continues with costs hitting an all-time excessive on Thursday — and there is room for it to rise extra as central banks proceed to buy bullion in file quantities. 

Costs may rise to $2,300 per ounce within the second half of 2024, particularly towards the backdrop of expectations that the U.S. Federal Reserve may minimize charges within the second half of 2024, Aakash Doshi, Citi’s North America head of commodities analysis, instructed CNBC. Gold is presently buying and selling at $2,203.

Gold costs are inclined to share an inverse relationship with rates of interest. As rates of interest dip, gold turns into extra interesting in comparison with fixed-income property corresponding to bonds, which might yield weaker returns in a low-interest-rate surroundings. 

Macquarie has additionally forecast gold costs to notch new highs within the second half of the 12 months. Whereas acknowledging that bodily purchases of gold have given costs a raise, Macquarie’s strategists attributed the current $100 spike in costs to “vital futures shopping for” of their word dated March 7.

“Central banks, who’ve purchased historic ranges of gold over the previous two years, proceed to be robust consumers in 2024 as properly,” World Gold Council International Head of Central Banks Shaokai Fan mentioned. 

These purchases have strengthened gold costs regardless of excessive rates of interest and a powerful greenback, market watchers instructed CNBC.

Increased charges have a tendency to cut back the attraction of gold in contrast with bonds because it doesn’t pay any curiosity, whereas a stronger greenback erodes the sheen of greenback-priced bullion for holders of different currencies.

Sturdy bodily demand for gold can also be fueled by its attraction as a safe-haven asset amid geopolitical uncertainties.

“Up to now decade, Russia and China have been the 2 largest consumers. Nonetheless, central financial institution purchases lately have diversified,” Doshi.

China is the main driver for each client demand and central financial institution gold purchases, and the nation’s not more likely to decelerate.

Amongst central banks, the Individuals’s Financial institution of China was the biggest purchaser of gold in 2023. China’s weak financial system and embattled actual property sector additionally drove extra buyers towards the safe-haven asset, with particular person gold funding remaining sturdy, WGC mentioned.

Poland’s central financial institution was the second-largest web client of gold, snapping up 130 tons of bullion in 2023.

Challenges of the Russia-Ukraine struggle “excellent subsequent door” drives Poland’s need for stability, mentioned Wheaton Valuable Metals CEO Randy Smallwood.

Poland’s central financial institution governor Adam Glapiński in 2021 had introduced plans to purchase 100 tons of gold in a bid to spice up the nation’s monetary safety, based on native media reviews.

Singapore recorded the third highest web gold purchases in 2023, pushed by purchases by the Financial Authority of Singapore (MAS), which purchased 76.51 tons.

Whereas MAS didn’t disclose the rationale for the funding determination, Fan surmised that central banks throughout the board have been cautious of the geopolitical dangers from the continuing Russia-Ukraine battle.

“They’ve in all probability been adjusting reserve allocations in accordance to their views on danger,” he mentioned. 

Stronger gold costs had been additionally pushed by retail purchases of jewellery, bars and cash.

On prime of the Individuals’s Financial institution of China shopping for probably the most gold amongst the world’s central banks, the nation additionally recorded the very best quantity of retail gold purchases.

“On the retail client stage, China was a significant component in robust demand for gold final 12 months as people moved into gold to diversify from different asset lessons,” Fan mentioned. 

In keeping with information from the World Gold Council, China overtook India to develop into the world’s largest gold jewellery purchaser in 2023. Chinese language shoppers purchased 603 tons of gold jewellery final 12 months, a ten% enhance from 2022.

Alongside China, client demand for gold in India can also be one of many world’s largest, mentioned Smallwood, particularly throughout India’s marriage ceremony season, which runs sometimes from October to December, and between January and March.

“Gold is at all times the very best type of worth present which you can truly give somebody inside India. It is an actual massive a part of the marriage season,” he mentioned.

Whereas India’s jewellery demand ought to proceed to be vital, dearer gold may put some dent in that spending, WGC mentioned. India’s gold jewellery consumption demand dipped 6% to 562.3 tons in 2023 from a 12 months earlier.

That mentioned, India’s funding in gold bars and cash grew 7% 12 months on 12 months. The nation’s central financial institution demand for gold additionally continues to be robust, with the Reserve Financial institution of India buying 8.7 tons of gold in January, marking the very best month-to-month buy since July 2022.

Other than China and India, Turkey’s gold demand final 12 months nearly doubled that of 2022, based on WGC information. 

Unrelenting client inflation, restricted out there various funding and home political uncertainty through the presidential elections final 12 months drove Turkey’s demand for the yellow steel.

“Turkey recorded robust retail demand as properly, with buyers piling into gold through the presidential election final 12 months to guard towards potential volatility within the Turkish lira,” Fan added.

Turkish annual client value inflation lately surged to 67.07% in February. The Turkish lira misplaced 40% of its worth towards the greenback prior to now 12 months, and is presently buying and selling at a file low towards the greenback.