Why is the world gold price skyrocketing?

Gold prices have been breaking records recently following the emergence of an unexpected group of buyers: individual investors in China.

The People's Bank of China (PBOC) recorded its 18th consecutive month of gold buying in April. (Source: AP)

Money flows into gold

Investors and speculators have led most of the previous record-breaking gold price rallies, said Tsutomu Kosuge, president of commodity research firm Marketedge. “The historic rally from March to April was an unusual example of real demand from China pushing the precious metal higher,” Kosuge told Nikkei Asia.

On the New York market, gold futures are fluctuating between $2,300 and $2,350 an ounce for the most traded contracts. This is up more than 10% from the closing price of $2,054.7 at the end of February. Gold futures also recorded record highs for eight consecutive trading sessions in early April, at one point reaching $2,448.8 an ounce.

According to the World Gold Council (WGC), physical gold ETFs attracted only a net inflow of more than 113 tonnes in the first quarter of 2024. The reason for this is that gold ETFs usually attract capital from Western institutional investors, but US Treasury bond yields are high, so institutional investors have withdrawn money from gold because this is an unprofitable investment.

However, gold prices continued to rise sharply, leading to speculation about the identity of mysterious buyers that fueled the strong rally in precious metal prices in the first months of this year.

Data released by the Shanghai Gold Exchange (SGE) on May 8 showed that the average daily trading volume of gold products in March and April reached 613.4 tons, up 78.8% year-on-year.

In April alone, trading volume was more than double the recent low of 141.2 tonnes recorded in October 2023.

China's demand for gold bars and coins increased 68% in the first quarter compared to the same period in 2023, according to a WGC report. According to some market experts, demand from individual investors along with buying activities by dealers to reserve gold and sell on SGE also contributed to the increase in gold prices.

According to market analyst Jeff Toshima, money is pouring into gold as the Chinese real estate market has not recovered and the Beijing government continues to tighten controls on crypto assets.

In addition to strong gold buying by individual investors, the People's Bank of China (PBOC) added to its gold holdings for 18 consecutive months through April. China and other emerging economies are also increasing their gold holdings in foreign exchange reserves.

The PBOC's gold purchases are giving individual investors in the Chinese market a sense of security, said Kosuge.

Gold is still sought after by investors even though the country's spot gold price has exceeded the international benchmark of the London Metal Exchange since June 2023.

Mr. Takahiro Morita, CEO of commodity market research company Morita & Associates, further explained: "Chinese individual investors are actively buying gold to protect their assets against concerns about currency devaluation and this could become a long-term trend."

Gold price forecast

In an interview with Kitco News, Mr. George Milling-Stanley, Director of Gold Strategy at State Street Global Advisors, commented that although the gold market entered a correction phase after climbing to $400 an ounce in March, the price of the precious metal is still likely to continue to increase strongly by the end of the year.

Concerns about the US Federal Reserve's monetary policy have created some short-term selling pressure on gold, but Milling-Stanley said gold prices remain supported in the long term due to central banks' demand for reserves and ongoing geopolitical uncertainty.

Sharing the same view, Mr. Jeff Clark, editor of TheGoldAdvisor.com, said that in addition to the demand for gold from central banks, the possibility of the Fed cutting interest rates later this year could push the price of this metal higher.

Gold prices have hit record highs as central banks around the world accelerate their purchases. Clark said central bank gold purchases have reached a “peak” after 15 years of increased spending on the metal.

Therefore, Mr. Clark believes that the Fed's monetary easing could be a real boost for the precious metal. The $2,500/ounce level is a level that prices could easily reach this year. Lower interest rates tend to increase the appeal of gold because the precious metal does not pay interest.

Source: https://baoquocte.vn/vi-sao-gia-vang-the-gioi-tang-phi-ma-270950.html