As we enter the second half of 2024, analyst forecasts have become increasingly optimistic, with many predicting that gold prices could reach new all-time highs by mid-2025, driven by a confluence of factors including central bank purchases, investor demand, and macroeconomic conditions.
Insights from Citi, TD Securities and Bank of America show that the key drivers behind the bullish outlook for gold prices remain strong physical demand, central bank activity and recent investment trends.
Strong physical demand
Citi analysts recently noted a slight decline in demand for physical gold in the second quarter of 2024 compared to the first quarter. However, the investment bank and financial services firm pointed out that the weakening comes from a very strong base.
It also highlighted that underlying gold consumption growth remains strong, which could push spot prices to a record average of $2,400-$2,600 per ounce in the second half of the year as financial investors catch up to the physical market.
Another major trend that will impact the
Despite this decline, Citi forecast a record 1,750 tonnes of onshore precious metals imports by 2024, up 18% year-on-year and an eightfold increase over 2020 levels. If correct, this would mean that Chinese retail gold imports would represent 47% of global gold mine production in 2024, compared to an average of 34% in 2021-2023 and 36% in 2017-2019.
Moreover, demand from the official sector remains strong. Gold purchases by central banks have stabilized at a record level of 28-30% of gold mine production since 2022, with the potential to rise to 35% in a bullish scenario.
Citi forecast a record central bank purchase of 1,100 tonnes of gold in 2024, with the potential to exceed 1,250 tonnes if bullish conditions prevail. Inflows into gold ETFs are also expected to improve as the Federal Reserve begins its rate cutting cycle.
Activities of the central banks
The People’s Bank of China (PBoC) did not buy gold for the second month in a row in June 2024, leading to a brief decline in gold prices. However, the Reserve Bank of India, the National Bank of Poland and the Czech National Bank continued their gold purchases. The purchases by the central banks of the latter countries helped stabilize the market.
The pause in Chinese central bank buying followed a record high in spot gold prices in May, driven by 18 months of consistent buying from the PBoC and other central banks.
China held 72.80 million troy ounces of gold at the end of June 2024, unchanged from May, while the value of its gold reserves fell slightly. TD Securities suggested that while the PBoC may wait for a price drop before resuming purchases, other central banks are likely to continue buying, maintaining the overall bullish sentiment in the market.
The World Gold Council survey supported this view, indicating that 29% of central banks plan to increase their gold reserves over the next twelve months, the highest level since the survey began in 2018.
Gold Prices: Future Projections and Outlook
Analysts at Bank of America (BofA) predicted that gold prices could rise to $3,000 per ounce in the next 12 to 18 months. However, they noted that current market flows do not yet support this price level.
The analysts emphasized the need for higher non-commercial demand as they believe a rate cut by the Federal Reserve could trigger significant inflows into physically backed gold ETFs and higher trading volumes.
Central bank purchases also play a crucial role in BofA’s bullish outlook. The analysts argued that continued central bank buying, driven by efforts to reduce the USD’s share of currency portfolios, will support gold prices. Gold’s status as a long-term store of value, protection against inflation and portfolio diversification underlies this trend.
BofA’s model took into account several factors, including mine production, recycled gold and jewelry demand. Analysts estimate that non-commercial buying has supported an average price of $2,200 per ounce to date.
A substantial increase in investment demand could push prices towards the $3,000 mark. The World Gold Council research was consistent with this view, which is also in line with central banks’ intentions to increase their gold reserves, which could further drive up prices.
A bullish year ahead for gold
The 2024 outlook for XAU/USD is apparently bullish at the moment, supported by strong physical demand, strong central bank buying and potential shifts in monetary policy.
While short-term fluctuations are inevitable, the long-term trend points toward higher gold prices. Analysts from several banking firms note that the critical factors that could drive gold prices to new heights include continued central bank buying, increased investment demand and macroeconomic uncertainties.
The interplay between monetary policy, inflation expectations and geopolitical risks will continue to determine the trajectory of the gold market. For now, the consensus seems pretty clear: gold remains a valuable asset in an uncertain world, with the potential for significant gains in the coming months and years.
