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Gold Retreats But Rally is Not Over

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  • Buying spree by central banks lifts gold prices to fresh record highs.
  • Gold’s rally defies traditional headwinds.
  • Gold retreat is likely to be short-lived and could rise substantially by year end.

Spot gold prices have surged to a new record high of $2,448 per ounce recently, driven by heightened global demand amidst economic and geopolitical uncertainties. This surge was further fuelled by expectations of central bank interest rate cuts, which enhance gold’s attractiveness.

China has been the largest gold buyer

According to the World Gold Council the People’s Bank of China (PBOC) has been consistently acquiring gold for 17 consecutive months, resulting in a 16% increase in its gold holdings. This strategic move aligns with the global trend among central banks to diversify their reserves and hedge against global economic uncertainties.

In 2023 alone, China’s central bank acquired 225 tons of gold, bringing its total gold reserves to 2,262 tons, while India’s central bank purchased 16.2 tons. Consequently, China has surpassed India as the world’s largest gold buyer for the year.

Central banks demand

Gold holds significant place in central bank reserves due to its safety, liquidity, and return. Therefore, central banks are substantial holders of gold, holding roughly one-fifth of the total gold mined. Notably, the central banks of Poland and Singapore have been increasing substantially their gold reserves in 2023, ranking as the second and third largest buyers for the year. Central banks maintained the pace of the record 2022 purchases and have bought 1,037 tonnes in 2023.

Gold shines despite headwinds

Recent geo-political tensions in the Middle East have bolstered gold prices to fresh record highs on save haven demand; however, the subsequent cooling of the tensions led to a sharp decline in gold prices. After a strong surge since mid-February the price of gold declined more than 4% this week.

Apart from the conflict in the Middle East, traders would be closely monitoring the U.S. economic data this week. The Federal Reserve preferred measure of inflation – the personal consumption expenditures (PCE) price index would be released on Friday which is expected to show a rise in March. Such scenario would potentially influence the Federal Reserve to delay interest rate cuts as inflation has been rising this year, which in turn could adversely impact gold prices.

It should be noted that despite the recent surge in U.S. Treasuries and the U.S. dollar, which is typically a headwind for gold, gold prices have been surging higher on central banks buying, particularly China and geo-political instability. This shows that the aggressive central banks buying is providing crucial support for gold prices, which are likely to remain elevated in 2024.

A graph showing the stock market

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Source: TradingView

Gold outlook and price forecast

Gold has rallied strongly over the past two months, despite surging U.S. dollar, rising inflation and signals for “higher for longer” rates from the Federal Reserve. These developments are generally bearish for gold, but the precious metal surged regardless.

Apart from central banks buying, the industrial usage in electronics is unlikely to diminish any time soon and could keep demand for physical gold in the years to come.

Once inflation start to steadily decline to the 2% target the Federal Reserve is likely to start to cut interest rates towards the end of the year. This is a big tailwind for the yellow metal and some of the strongest rallies have occurred during monetary easing cycles.

While gold is retreating from its record high and some consolidation could be seen in the coming months, higher price levels are likely in 2024 and 2025. Our year end target for gold is in the range of $2,500 and $2,550.

Professional traders looking for magnified exposure to gold may consider Leverage Shares +3x Long Gold or -3x Short Gold ETPs.

Footnotes:
  1. World Gold Council
Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Violeta Todorova

Senior Research

Violeta trat Leverage Shares in September 2022 bei. Sie ist verantwortlich für die Durchführung technischer Analysen, Makro- und Aktienmarktforschung, wodurch sie wertvolle Erkenntnisse bereitstellt, um die Gestaltung von Anlagestrategien für Kunden zu unterstützen.

Bevor sie LS beitrat hat Violeta bei einigen Hochprofil – Investitionsfirmen in Australien gearbeitet wie Tollhurst und Morgans Financial, wo sie die letzten 12 Jahre verbracht hat.

Violeta ist eine zertifizierte Markttechnikerin von der Vereinigung der technischen Analysten in Australien und sie hat Postgraduierten-Diplom in Angewandten Finanzen und Investitionen von Kaplan Professional (FINSIA), Australien, wo sie jahrelang Dozentin war.

Julian Manoilov

Marketing Lead

Julian Manoilov kam 2018 im Zuge der Expansion des Unternehmens in Osteuropa zu Leverage Shares. Er ist für Online-Inhalte und die Steigerung der Markenbekanntheit verantwortlich.

Auf wissenschaftlicher Ebene befasst sich Herr Manoilov mit Wirtschaft, Psychologie, Soziologie, europäischer Politik und Linguistik. Durch eigene unternehmerische Tätigkeit hat er Erfahrung in der Geschäftsentwicklung und im Marketing gesammelt.

Herr Manoilov sieht Leverage Shares als innovatives Unternehmen auf den Gebieten Finanzen und Fintech. Seine Arbeit zielt darauf ab, die nächsten großen Neuigkeiten an Investoren in Großbritannien und im übrigen Europa weiterzugeben.

Oktay Kavrak

Head of Communications and Strategy

Oktay Kavrak kam Ende 2019 zu Leverage Shares. Er ist für das Unternehmenswachstum durch Pflege wichtiger Geschäftsbeziehungen und für die Entwicklung des Vertriebs in den englischsprachigen Märkten verantwortlich.

Vor seinem Wechsel zu Leverage Shares war Herr Kavrak für die UniCredit tätig, wo er als Corporate Relationship Manager multinationale Unternehmen betreute. Zuvor arbeitete er in den Bereichen Unternehmensfinanzierung und Fondsverwaltung u. a. für IBM Bulgaria und DeGiro/FundShare.

Herr Kavrak besitzt einen Bachelor-Abschluss in Finanz- und Rechnungswesen sowie einen postgradualen Abschluss in Betriebswirtschaft des Babson College. Zudem ist er Chartered Financial Analyst (CFA).

Sandeep Rao

Research

Sandeep Rao ist seit September 2020 bei Leverage Shares. Er leitet das Research zu bestehenden und neuen Produktlinien, Anlageklassen und Strategien, wobei ein besonderer Schwerpunkt auf der Analyse aktueller Ereignisse und Entwicklungen liegt.

Herr Rao verfügt über langjährige Erfahrung an den Finanzmärkten. Er begann seine berufliche Laufbahn als Financial Engineer bei einem Hedgefonds in Chicago und arbeitete im Verlauf von acht Jahren in vielen unterschiedlichen Bereichen und Organisationen – von der Prime Services Division von Barclays Capital bis (zuletzt) zum Index Research Team der Nasdaq.

Herr Rao besitzt einen Masters-Abschluss in Finanzwissenschaften sowie einen MBA des Illinois Institute of Technology in Chicago.