Demand for precious metals is boosted by Chinese consumers and central banks .Gold is closing in on an all-time high as resurgent Chinese demand and fears over the health of regional US banks have added further fuel to the six-month rally in the precious metal.
According to the World Gold Council (an industry body), consumers in China have rushed to purchase more gold jewellery, bars, and coins during the first quarter of this year, after Beijing lifted their zero-Covid policy. The failure of three US regional banks has also led investors to look to yellow metal as a safe store of value.
On Thursday, the latest leg of a bank crisis in which regional US Bank PacWest announced it was looking into a possible sale to secure its own future pushed trading of gold on the Comex Exchange to its all-time highest of $2,072. According to Refinitiv, the spot gold price was within cents on Thursday of its record high of $2.072.49, which is the highest ever.
Since last November, gold has experienced a resurgence. This is due to the record 1,087 tons of gold purchased by central banks in 2017. The yellow metal was bought by non-western institutions to offset their dependence on the US dollar, after Washington weaponised it in its sanctions against Moscow.
According to the World Gold Council’s quarterly report, the buying spree by central bank continued into this year. The World Gold Council reported that the World Gold Council purchased a record number of 228 tonnes in the first three months of the year. This is despite the fact that the levels were lower than in the second half last year.
John Reade said that the WGC’s chief market strategist, John Reade, stated that the price of gold would be determined by whether or not investors see signs of an worsening financial crisis, a certainty about when the US Federal Reserve will start cutting rates, and a weaker US dollar.
He said: “There are different forces pushing and pulling, but we have yet to see widespread financial investments in gold.” It should certainly go to its all-time highest from here. It is a question of whether it can make gains from here on.
Gold-backed Exchange Traded Funds experienced outflows in the past year, as investors flocked to bonds due to higher interest rates, compared with gold, which is not a yielding asset.
ETF outflows were modest in the first quarter, at 29 tonnes or $1.5bn. The 11-month outflow streak was reversed by the start of the banking crisis in March.
Due to these factors, the demand for gold including all over-the counter activity rose by 1 percent over the past year, reaching 1,174 tons in the first three months.
Gold prices are high and have led to a decline in demand, especially among Indian consumers who are price sensitive. In India, jewellery sales fell 17 percent year-on-year in the first quarter of 2023.
Mystery buyers who did not notify the IMF of their purchases accounted for a significant volume of the records set by central banks in gold purchases during the second half last year. The mystery buyers were suspected to be Chinese and Middle Eastern entities.
The mystery purchases continued into the first quarter, with between 110 and 120 tonnes. This is lower than the 500-600 tonnes expected in the last six months of 2020.
Reade stated that although the number may decrease as central banks begin to report their purchases the People’s Bank of China is most likely the cause of the drop.