Gold price witnessed a sudden $27 upswing and stormed through the $2,350 barrier to refresh an all-time high at $2,354 in Asian trading on Monday. Despite easing geopolitical tensions between Israel and Hamas and reducing bets of a June US Federal Reserve (Fed) interest rate cut, Gold price extends its record-setting rally primarily on reports of potential robust Gold purchases by global central banks.
A Chinese official reported on Sunday that the People’s Bank of China (PBoC) purchased Gold for its reserves for the 17th straight month in March. Bullion held by the Chinese central bank rose to 72.74 million fine troy ounces last month, the official said.
Meanwhile, markets are expecting robust Gold purchases by global central banks later this year, therefore advancing their purchases and ramping up Gold price to a new record high. According to the World Gold Council (WGC), Gold demand from central banks totaled 1,037.4 metric tons in 2023, just below the record high set in 2022 at 1,081.9 metric tons.
The WGC report showed that global central banks' purchases of gold rose by 19 metric tons in February, up for a ninth consecutive month.
However, it remains to be seen whether Gold price will sustain the record-setting rally ahead of Wednesday’s Consumer Price Index (CPI) from the United States (US). On Friday, the US Nonfarm Payrolls (NFP) report showed that the US economy added 303,000 jobs in March, against expectations of 200,000 and the 275,000 from the previous month. Strong US NFP number diminished the odds of a June Fed rate cut from about 62% to about 48% according to CME Group’s FedWatch Tool.
Also, easing Middle East geopolitical tensions could act as a headwind to the Gold price upsurge. Egypt’s Al-Qahera News state-affiliated TV channel said early Monday, citing a senior Egyptian source, “progress has been made in discussions in Cairo on a Gaza conflict truce and there is agreement on the basic points between all parties involved.”
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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