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Gold Retreats But Rally is Not Over

Your capital is at risk if you invest. You could lose all your investment. Please see the full risk warning here.

  • 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.

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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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Violeta Todorova

Senior Research

Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.

Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.

Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.

Julian Manoilov

Marketing Lead

Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.

Oktay Kavrak

Head of Communications and Strategy

Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.

È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.

Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.

Sandeep Rao

Research
Sandeep è entrato a far parte di Leverage Shares nel settembre 2020. È responsabile della ricerca sulle linee di prodotto esistenti e nuove, su asset class e strategie, con particolare riguardo all’analisi degli eventi attuali ed i loro sviluppi. Sandeep ha una lunga esperienza nei mercati finanziari. Iniziata in un hedge fund di Chicago come ingegnere finanziario, la sua carriera è proseguita in numerose società ed organizzazioni, nel corso di 8 anni – da Barclays (Capital’s Prime Services Division) al più recente Index Research Team di Nasdaq. Sandeep detiene un M.S. in Finanza ed un MBA all’Illinois Institute of Technology di Chicago.

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