Central Banks Shift Focus to Gold as Prices Rise
In a recent conversation with Wall Street LogicMining, Aakash Doshi, NAM Head of Commodities Research at Citi, highlighted an interesting trend in the gold market. Central banks, traditionally seen as net sellers of gold, have now become significant buyers, consuming over 1,000 tons per annum. This shift in behavior could be crucial for investors, as it indicates that central banks may be less sensitive to higher gold prices compared to other market participants.
Historically, jewelry fabrication has been a major driver of gold demand, accounting for around 50% of the market. However, in recent years, the dynamics have started to change. The Great Financial Crisis (GFC) marked a turning point, leading to central banks emerging as key buyers in the gold market. This strategic shift has not only taken a significant amount of supply out of the market but also influenced mine production, representing up to 28% of annual output.
Doshi’s research suggests a bullish outlook for gold, with a potential price target of $3,000 per ounce by 2025. Factors contributing to this positive forecast include strong investor demand, particularly for physical gold, and record-level purchases by central banks, especially in emerging markets. Despite a 20% increase in gold prices since February, driven by factors like weakening dollar and low interest rates, Doshi emphasizes that the surge is primarily fueled by robust physical demand and macroeconomic factors aligning in favor of gold.
The current environment, characterized by massive global debt levels post-pandemic, is creating a conducive backdrop for gold’s upward trajectory. Doshi believes that the historical price ceiling for gold may have transformed into a support level of $1,900 to $2,000 per ounce, signaling potential for sustained higher prices. Even with the possibility of a more hawkish monetary policy stance, the risk-reward balance seems to favor higher gold prices, especially in light of a potential U.S. recession looming on the horizon.
Overall, central banks’ increasing interest in gold, coupled with strong investor demand and shifting macroeconomic trends, paints a positive picture for the precious metal’s future. As investors navigate through uncertain times, gold’s allure as a safe haven asset and a hedge against market volatility appears stronger than ever.