Gold is nearing all-time highs as recovering Chinese demand and health concerns about US regional banks added further fuel to the precious metal’s six-month rally.
Consumers inside China rushed to buy more jewelry, bars and coins in the first three months of the year after Beijing rolled back its anti-Covid policies, according to the World Gold Council, an industry body, while the bankruptcies of three US regional banks have also prompted investors to turn to the yellow metal, which serves as a store of value in times of uncertainty.
The latest leg of a banking crisis, in which US regional bank PacWest said it was exploring a potential sale to secure its future, pushed trading into gold futures on the Comex exchange to match its all-time high of $2,072 on Thursday. The spot price of gold came within cents of its all-time high of $2,072.49 on the same day, according to Refinitiv.
Gold has undergone a rebirth since last November, buoyed by a record 1,087 tonnes of central bank buying last year. Non-Western institutions have been picking up the yellow metal to offset their reliance on the US dollar after Washington weaponized the greenback in its sanctions against Moscow.
The shopping spree from central banks it extended into this year, harvesting a record 228 tons of gold in the first quarter, despite the easing of rampant levels seen in the second half of last year, according to the World Gold Council’s quarterly report.
John Reade, chief market strategist at the WGC, said whether or not gold can go higher would depend on whether investors see signs of a worsening banking crisis, certainty about when the US Federal Reserve starts cutting rates and a weaker dollar.
“There is back and forth from many sides, but what we have yet to see unleashed is widespread financial investment in gold,” he said. “He should definitely take it to an all-time high from here. The question is whether he can go on from here and make significant gains.
However, backed by gold exchange-traded funds it experienced outflows last year as higher interest rates lured investors into bond yields versus the precious metal, which is an unprofitable asset.
ETF outflows in the first quarter calmed down to a modest 29 tons, or $1.5 billion, and the 11-month streak of outflows was reversed in March with the onset of the banking crisis.
As a result of these factors, the demand for gold, including the over-the-counter activity, increased by 1% from a year ago to 1,174 tons in the first quarter.
High gold prices have caused some demand destruction and stimulated sales activity, particularly among price-sensitive consumers in India, where jewelery sales fell 17% year-on-year in the first three months of the 2023.
Significant volumes of the central bank’s record high gold purchases in the second half of last year were made by mystery buyers who failed to report the purchases to the IMF. They were widely suspected of being Chinese, Russian and Middle Eastern entities.
This continued in the first quarter of the year with 110-120 tons of mystery purchases, lower than the 500-580 tons in the last six months of 2022.
While the number may decline as central banks signal their purchases, Reade said the decline was most likely driven by the People’s Bank of China now reporting its purchases.
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