1. Gold Rally and Economic Uncertainty
Bank of America (BofA), Citigroup, and Macquarie Group have issued bullish forecasts on gold as it surpasses $3,000 per ounce. Central banks' large-scale purchases, combined with strong buying from China, have nearly doubled gold prices over two years. Rising demand for safe-haven assets has further increased investor interest.
Economic instability driven by Donald Trump’s trade policies has led to a decline in consumer confidence and rising inflation, further fueling the rally. Macquarie has raised its gold price target to $3,500.
2. Gold ETF Inflows Surge
After four years of net outflows, gold-backed ETFs have turned positive in 2024. February’s inflows into North American gold ETFs reached the highest level since July 2020.
Citigroup attributes this shift to economic slowdown concerns, prompting U.S. households to diversify their portfolios with gold ETFs. While retail investor participation remains limited, further inflows could drive prices even higher.
3. Stock Market Risks and Short-Term Volatility in Gold
Historically, gold rises during economic uncertainty. However, if equity markets crash, investors may sell gold holdings to cover losses, leading to short-term corrections.
TD Securities warns that, similar to the 2008-09 financial crisis and 2020 pandemic, a sharp risk-off event could temporarily push gold prices lower. Nevertheless, BofA remains bullish, expecting gold to reach $3,500 in the long run.
4. Rising Real Interest Rates Fail to Dampen Gold Demand
Typically, rising real interest rates reduce gold demand. However, in this rally, gold prices have surged despite higher rates.
Macquarie attributes this anomaly to growing government debt and fiscal deficits, which are boosting gold’s appeal as a hedge against sovereign credit risks. Some investors are shifting funds from developed market bonds to gold, viewing it as a safer alternative.
5. Central Bank Gold Buying Continues
The primary driver of gold’s 2024 rally has been central bank purchases. According to the World Gold Council, central banks added 18 tons of gold in January alone.
China’s central bank has increased its holdings for four consecutive months, reaching 73.61 million ounces. Goldman Sachs expects strong central bank demand and rising investor inflows to push gold to $3,100 by year-end.
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