Gold Is Ready For New Records As Central Banks Keep Buying

Vladimir Zernov
Published: Mar 29, 2024, 19:16 UTC

Key Points:

  • The price of gold touched new highs, rising by more than 8% since the beginning of this year.
  • Outflows from gold ETFs continued as private investors focused on spot Bitcoin ETFs.
  • Meanwhile, central banks kept buying gold to diversify their reserves amid rising geopolitical tensions.
Gold, Silver, Platinum Forecasts

In this article:

Gold  has finally managed to settle above the $2200 level despite dollar’s rebound from March lows and worries about hawkish Fed.

Interestingly, the approval of spot Bitcoin ETFs did not have a negative impact on gold markets. Private investors rushed to buy the new product, pushing the world’s first cryptocurrency to historic highs.

According to the World Gold Council, global gold ETFs saw an outflow in February. The outflows from gold ETFs continued for the ninth month in a row, so it’s a strong trend.

At this point, it is obvious that many younger investors prefer crypto and ignore gold. Institutional money has also started to move into Bitcoin after the approval of spot Bitcoin ETFs.

However, the price of gold is moving higher, and there must be an explatation for this phenomenon. Industrial and jewellery demand for gold is stagnant, ETFs and similar products suffer outflows, so who’s buying? Central banks.

The geopolitical shifts of the last two years have shown the importance of a reserve asset that cannot be blocked.

Central banks want to diversify their holdings but have few opportunities. If a central bank wants to decrease the share of dollar-denominated bonds, the only viable option outside the traditional set of currencies like euro or yen is to buy Chinese debt. Obviously, such a decision comes with its own risks, so gold becomes the only option to decrease the share of foreign government debt in reserves.

Central bank gold purchases in 2022 and 2023 have increased by roughly 80% compared to pre-covid levels. The People’s Bank of China is the biggest gold holder and will likely continue to buy gold at a robust pace due to rising tensions in U.S. – China relations.

Interestingly, the biggest central bank purchases in 2023 came from very different places, including countries like Singapore, Czech Republic, Iraq, and Philippines.

At this point, it looks that this trend will remain unchanged in the next few years as geopolitical tensions increase, so gold markets should enjoy sustainable support.

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About the Author

Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.

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