Gold Like an Investment. Risks vs Guarantees
Significant buying by China, India, Turkey, Poland and a sharp growth in technological demand for gold
Since the beginning of the year, gold has risen in double digits, approaching a 30% growth rate. This increase, on one hand, underscores yellow gold’s continued dominance as a leader among safe-haven assets; on the other, it draws attention to emerging economies, which are stockpiling in a geopolitical environment marked by tensions and uncertainties.
"The reasons for this rise seem to be multifaceted: the decline in central bank interest rates, especially in the United States, along with geopolitical issues, such as the Israel/Gaza conflict, the Israel/Lebanon conflict, and the ongoing war between Russia and Ukraine," commented Sakhila Mirza, Executive Director and General Counsel of the LBMA, the independent authority that ensures leadership, integrity, and transparency in the global precious metals industry.
"This has led not only retail investors but more importantly central banks to take advantage of gold’s established status as a ‘safe haven.’ This year, for instance, we’ve seen substantial month-to-month purchases of gold by the People's Bank of China, as well as significant buying from India, Turkey, and Poland. At the retail level, inflows into gold ETFs have also been impressive, although jewelry purchases have been relatively weak in many countries due to the high price."
Record after record, gold seems to encounter no obstacles to its growth, not only in the recent period. "Gold has been strong for a couple of years, but there are a number of factors contributing to over 30 record highs in gold prices throughout 2024. The fact that central banks have doubled their gold purchases since mid-2022 has certainly been one of the factors preventing gold prices from being pressured by higher interest rates and a stronger U.S. dollar. But it's not the only factor. A lot of gold buying has come from emerging market investors. These investors have been reacting to domestic financial and political events rather than following movements in the dollar and U.S. interest rates," explained John Reade, Senior Market Strategist at the World Gold Council, who predicts a stable future for gold’s returns.
"I tend to think about gold in the long term, and it should deliver returns perhaps 2-3 percentage points above U.S. inflation. Of course, we’ve seen stronger performance in the last two years. But we shouldn't project that forward and expect that trend to continue every year. With interest rates expected to fall in the U.S. and other Western economies, that’s usually a good environment for gold price performance. But we should also consider other aspects of the global gold market. High prices tend to dampen jewelry demand from price-sensitive consumers. Central bank buying has reached record levels since the second half of 2022, and while we expect it to remain strong, we might not continue to see the same levels of demand going forward. Finally, the AI boom is driving up technological demand for gold. It’s a small component, but it is having a positive impact on growth and will be a long-term driver," Reade concluded.
"The reasons for this rise seem to be multifaceted: the decline in central bank interest rates, especially in the United States, along with geopolitical issues, such as the Israel/Gaza conflict, the Israel/Lebanon conflict, and the ongoing war between Russia and Ukraine," commented Sakhila Mirza, Executive Director and General Counsel of the LBMA, the independent authority that ensures leadership, integrity, and transparency in the global precious metals industry.
"This has led not only retail investors but more importantly central banks to take advantage of gold’s established status as a ‘safe haven.’ This year, for instance, we’ve seen substantial month-to-month purchases of gold by the People's Bank of China, as well as significant buying from India, Turkey, and Poland. At the retail level, inflows into gold ETFs have also been impressive, although jewelry purchases have been relatively weak in many countries due to the high price."
Record after record, gold seems to encounter no obstacles to its growth, not only in the recent period. "Gold has been strong for a couple of years, but there are a number of factors contributing to over 30 record highs in gold prices throughout 2024. The fact that central banks have doubled their gold purchases since mid-2022 has certainly been one of the factors preventing gold prices from being pressured by higher interest rates and a stronger U.S. dollar. But it's not the only factor. A lot of gold buying has come from emerging market investors. These investors have been reacting to domestic financial and political events rather than following movements in the dollar and U.S. interest rates," explained John Reade, Senior Market Strategist at the World Gold Council, who predicts a stable future for gold’s returns.
"I tend to think about gold in the long term, and it should deliver returns perhaps 2-3 percentage points above U.S. inflation. Of course, we’ve seen stronger performance in the last two years. But we shouldn't project that forward and expect that trend to continue every year. With interest rates expected to fall in the U.S. and other Western economies, that’s usually a good environment for gold price performance. But we should also consider other aspects of the global gold market. High prices tend to dampen jewelry demand from price-sensitive consumers. Central bank buying has reached record levels since the second half of 2022, and while we expect it to remain strong, we might not continue to see the same levels of demand going forward. Finally, the AI boom is driving up technological demand for gold. It’s a small component, but it is having a positive impact on growth and will be a long-term driver," Reade concluded.