Demand for physical gold is likely to have weakened in the second quarter compared to the first, although “on a very strong basis,” Citi analysts said in a Tuesday note.
The Wall Street giant notes that underlying gold consumption growth for 2024 is still positive, which could drive spot trading to a record average price of $2,400-$2,600 per ounce in the second half of the year, “as financial investors catch up to make.”
China’s non-monetary gold imports fell from an unprecedented 189 tonnes per month in the first quarter to a robust 137 tonnes per month in the second quarter. Citi continues to forecast a record 1,750 tonnes of onshore precious metal imports in 2024, representing an 18% year-on-year increase and an eightfold increase over 2020 pandemic levels.
“If our estimate is correct, China’s retail gold imports would represent 47% of global gold mining production in 2024, compared to an average of 34% in the 2021-2023 period and a 2017-2019 average of 36%,” say the analysts.
Meanwhile, gold demand in the official sector has stabilized at a record 28-30% of gold mine production since 2022, with the potential to rise to 35% in a bull case scenario in the coming year due to trade wars and concerns about US fiscal policy. Citi said.
Analysts are modeling a record purchase of ~1,100 tons of gold by the central bank in 2024, up 5.8% year-on-year, with the potential to exceed 1,250 tons in a bullish scenario.
Moreover, flows into gold exchange-traded funds (ETFs) should also improve in the second half of the year as the Federal Reserve begins its rate-cutting cycle, Citi added.
“We remain constructive on gold’s physical absorption over the next 12 months, with a potential Fed austerity cycle and U.S. labor market headwinds supporting paper demand for the yellow metal,” the bank’s analysts wrote.
Their base price targets for gold are $2,800-$3,000 per ounce by mid-2025, which represents a 10-20% upside versus forwards.
