Gold is benefiting from a number of factors, including continued central bank buying, investment flows from Asia, steady consumer demand and continued geopolitical uncertainty.
Gold prices have risen about 12% since the start of the year, outperforming most other asset classes.
Gold has benefited from a number of factors, including continued central bank buying, investment flows from Asia, steady consumer demand and continued geopolitical uncertainty.
Looking to the future, the question that many investors are asking right now is whether the gold rally can continue or has it started to decline?
The heart of the financial market
Gold has been the focus of financial markets this year, breaking record highs several times between mid-March and mid-May.
Gold prices traded above $2,300 an ounce for most of the second quarter of 2024, hitting an all-time high of $2,449.89 an ounce on May 20.
However, gold's rally has stalled since then due to uncertainty over when the US Federal Reserve will cut interest rates, after the bank kept its benchmark interest rate unchanged at its June meeting.
The suspension of gold purchases by the People's Bank of China (PBoC, the central bank) in May 2024, which had supported physical gold demand, is another headwind for the precious metal.
Despite high global interest rates, with a few exceptions, and a strong US dollar, the precious metal delivered double-digit returns across many currencies in the first half of the year.
The relationship between gold, real interest rates, and the US dollar is not as “broken” as some market participants have speculated. In fact, the relationship has likely prevented gold from rising further. In the current environment, the negative factors have simply been offset by other factors that are more dominant.
So what has been behind gold’s impressive performance over the past six months? The answer is that gold price support comes from continued buying by central banks led by the PBoC, strong investment trends from Asia, stable global consumer demand and geopolitical uncertainty in the Middle East and Europe.
Maintain the thrust
Demand from central banks has been a major driver of gold price movements in recent years.
This demand has contributed at least 10% to the gold price increase in 2023 and about 5% to the gold price increase since the beginning of the year.
However, the PBoC has shown a slowdown in gold purchases in recent months, culminating in holding gold reserves unchanged at the end of May 2024.
This, combined with significant selling, has raised questions about whether demand from central banks could ease for the rest of the year.
The World Gold Council (WGC) said that last year, central banks bought 1,037 tonnes of gold, the second-largest ever, after a record 1,082 tonnes in 2022.
The percentage of central banks forecasting to continue increasing their gold holdings hit its highest level in at least six years, according to the WGC's annual survey released in mid-June.
Specifically, the survey found that 29% of central bank representatives said their banks planned to increase gold reserves in the next 12 months, the highest level since the survey began in 2018.
Asian investors have also been a major contributor to the recent rise in gold prices, as evidenced by demand for gold bars and bullion, flows into exchange-traded funds (ETFs) and the spot market.
Historically, Asian investors have tended to buy when prices fall, but recently they have followed the trend. So while the fundamentals for holding gold remain, the question is whether the PBoC’s pause in buying will encourage short-term investors to take profits.
In terms of geopolitical factors, analysts predict that the current geopolitical tensions in the Middle East with the war between Israel and Hamas, as well as the Russia-Ukraine conflict, will continue through 2024.
So far, there are few signs that conflicts will ease anytime soon. Political polarization, armed conflict and the erosion of globalization have fueled economic instability. Geopolitical risks are particularly difficult to predict and can come from the least expected places.
However, the truth is that gold prices respond positively to geopolitical issues, rising 2.5% for every 100 points the Geopolitical Risk Index (GPR) increases. It is often said that consumers tend to be “price takers” rather than “price makers.”
In the short term, that may be true. But jewelry and technology account for more than 40% of annual gold demand. So consumers play a big role in driving — and sometimes slowing — gold’s price rise. And they typically respond to two main factors: price and income.
In this case, the recent sharp rise in gold prices has dampened demand in some markets such as India and China. But positive economic growth may partially counteract this effect.
The possibility of precious metals surpassing the $3,000/ounce mark seems remote.
Analysts at JP Morgan said they remain "positive" on gold prices in the medium term, and see the sideways price of the precious metal as a "buying opportunity" for long-term investors to accumulate more.
JP Morgan analysts said they forecast gold prices to rise 8% to 10% by year-end and be on track to hit their target price of $2,600 an ounce by 2025.
As investors look for clarity on when the Fed will cut interest rates, the US election in November is likely to add volatility to markets, analysts say.
Gold is known as a preferred hedge asset during times of geopolitical and economic uncertainty, thriving in a low interest rate environment.
Most analysts and traders remain bullish on gold, but they say the prospect of the precious metal breaking above $3,000 an ounce seems far-fetched at this point.
“It’s not that there’s any one specific factor holding back gold prices, but $3,000 an ounce would mean another 30% upside from where we are now, which is quite a big number given the strong gains we’ve seen in the first half of the year,” said Nikos Kavalis, managing director of Metals Focus.
With a few exceptions, the global economy appears to be showing unstable growth indicators, inflation has fallen but remains high, making interest rate cuts still only a plan.
Analysts say that the current gold price is clearly reflecting the forecast for the second half of the year. In other words, after achieving good growth momentum in the first half of the year, the current market trend suggests that gold prices will move sideways from current levels for the rest of the year.
However, things rarely go as predicted. And the global economy, like gold, seems to be waiting for a catalyst.
For gold, the catalyst could come from lower interest rates in developed economies, attracting investment flows from the West, as well as support from investors looking to hedge against potential risks from stock markets and persistent geopolitical tensions.
Of course, the outlook for gold is not without risks. A significant reduction in central bank demand or strong profit-taking by Asian investors could keep a lid on gold prices. For now, however, global investors continue to benefit from gold’s role in strong asset allocation strategies.
Analysts have different forecasts for gold prices in 2025. However, they are generally optimistic about the precious metal market.
Lukman Leong, a Jakarta-based commodities and foreign exchange analyst, said he expected gold to trade at $3,000 an ounce or more next year due to strong physical demand, especially from China.
Meanwhile, Traderindo analyst Wahyu Laksono expects the metal to trade in the $2,300-$2,500/ounce range in 2025, up from his previous forecast of $2,300-$2,400/ounce.
“Gold is in a potential consolidation phase to form a bottom before the next rally,” said Mr. Laksono.
ANZ Research's 2025 gold price forecast released in late June showed the precious metal would trade at an average of $2,593 an ounce next year, compared with an estimate of $2,493 an ounce made in April.
However, Laba Forexindo Berjangka Director Ibrahim Assuaibi has a different forecast for gold prices in 2025.
He expects gold prices to fall to $2,100 an ounce as geopolitical tensions in the Middle East and Europe are expected to ease.
However, Mr. Assuaibi's latest gold price forecast for 2025 is up from his February estimate of $1,750-2,000/ounce./.
Source: https://baolangson.vn/da-tang-cua-vang-chung-lai-co-hoi-de-mua-hay-dau-hieu-thoai-trao-5014092.html
![[Photo] President Luong Cuong talks on the phone with South Korean President Lee Jae Myung](https://vphoto.vietnam.vn/thumb/1200x675/vietnam/resource/IMAGE/2025/6/13/eee54a4c903f49bda277272b1dda68e8)
Comment (0)