Demand for physical gold investments could increase further in 2024 and next year, Citi strategists said in a note on Thursday.
In their report, the strategists maintained their gold price targets for the next 3 months and 12 months at $2,500/oz and $3,000/oz respectively. Average quarterly prices are expected to move higher in the coming year, with an estimated basic trading range in 2025 of $2,800-$3,000/oz.
Citing World Gold Council Q2 2024 demand data, Citi suggests that bullion consumption growth in Q3 2024 will face challenges from jewelry, bars/coins and China retail channels. However, this is likely to be fully offset by official sector buying, demand for over-the-counter (OTC) and ETF investments, and India’s gold-boosting tax policy.
“Indeed, it appears that the multi-year trend of precious metals ETF deleveraging, which began to reverse at the end of the second quarter, could increase investor demand for gold into a Fed austerity cycle,” strategists noted .
They predict that demand for physical investments in gold, as a percentage of mining supply, will rise 9 percentage points annually to 83% in 2024, and rise another 2 percentage points to 85% in 2025. This would be the highest share of gold investment demand since 2020, when average nominal and real gold prices rose around 25% and spot trading broke above $2,000/oz for the first time.
Demand for precious metals investments also appeared robust in the period 2010-2012, following the Great Financial Crisis. Physical gold consumption, excluding jewelry, continued to account for approximately 84% of mine production during those three years.
“We believe it is likely that the bottom of the financial gold price has moved higher in 2024, with strong dip buying likely during periods of liquidation,” strategists added.
The July Federal Open Market Committee (FOMC) did not provide explicit guidance on rate cuts, but Chairman Powell indicated that lower policy rates could come as early as September, barring a surprise rise in inflation.
“This could support investment flows,” strategists added.
Gold demand by central banks is expected to remain high in 2024 and 2025, despite the recent absence of reported purchases by the People’s Bank of China (PBOC) in May and June.
Citi revised down its 2024 estimate for central bank gold demand by 14% to 941 tonnes, although this is still a strong figure. The company expects that the PBOC will eventually report new gold purchases again, especially in light of possible US trade tariffs in 2025.
The report notes that demand for gold bars and coins fell significantly in the second quarter of 2024, driven by weak flows from Western markets. Specifically, demand for bars and coins fell by 16.7% quarter-on-quarter and 4.6% year-on-year to 261 tonnes.
Record stock markets, low volatility and a strong environment for the US dollar have likely deterred buying in North America, strategists said.
