USD Strength to Wane in 2024
Gold has remained resilient, even amid surging Treasury yields and a six-month high in the US Dollar Index, according to analysts at ANZ Research. They believe that as the strength of the US dollar diminishes in 2024, gold will experience a tailwind.
Improving Investment Flows
ANZ Research expects investment flows to improve for gold. They argue that increasing macroeconomic uncertainty and growing expectations of monetary easing into 2024 will increase the investment appeal of gold. The potential stress on corporate debt from sustained higher interest rates could also have negative implications for economic growth, further increasing the attraction of gold as an investment.
ANZ notes that in 2023, investors have liquidated 130 tonnes of strategic investments in gold ETFs, mainly in Europe and North America due to tightening monetary policies. However, Asia has seen inflows of 9.1 tonnes this year, driven by a weakening Chinese yuan and lower consumer confidence. Weakness in the Japanese yen has also supported ETF flows in the region.
Rise in Retail Investment
Retail investment in gold is picking up. US gold coin sales rose to 85,500 ounces in August. Chinese retail investments are also gaining momentum due to the weakening yuan and volatile equity markets.
Speculative Positions and Central Bank Purchases
Net-long positions in gold futures and options are at six-month lows. ANZ analysts argue that this leaves limited room for a significant sell-off in gold prices. They also expect central bank purchases of gold to continue, driven by geopolitical tension. However, they do not anticipate reaching the record levels seen in 2022.
Improved Physical Demand
ANZ expects physical demand for gold to improve in the fourth quarter. Weak currency and a fall in consumer confidence in China are factors that should boost retail investment in gold. Gold imports in India have also been strong, and with the government curbing imports of gold jewelry from Indonesia, importers are expected to return to using plain gold. Additionally, there may be increased imports ahead of the festive season.
Caution on India’s Demand Prospects
ANZ cautions that a weak Indian rupee could keep domestic gold prices higher, potentially impacting retail demand. Other factors such as disappointing monsoon rainfall and food inflation can also undermine consumer demand for gold in the fourth quarter of the year.