Gold prices have recently surged by almost 28%, reaching $2387 per ounce. The primary reason behind this surge is the increased demand for gold from China, which has been buying gold for 17 months in a row. China’s official gold reserves have grown by 314 tonnes or 16.1% from October 2022 to March 2024. The World Gold Council (WGC) has attributed the rise in gold prices to geopolitical tensions and the actions of the US Federal Reserve to manage inflation and interest rates. The WGC expects gold prices to continue to rise, and most dips in gold prices are likely to be bought into, based on central banks’ buying, China’s buying, geopolitical tensions, and an unsustainable US fiscal deficit.
Christopher Wood, the global head of equity strategy at Jefferies, believes that China’s gold purchases are responsible for this surge in demand. Despite no significant investor interest in the yellow metal, Wood thinks that the lack of evidence of ETF inflows in the Western world supports the idea that gold has broken out to new highs. Retail participation has been discouraged by the rising prices of gold. The physical premium on gold bars and coins traded in Singapore is currently at a normal 1-2% compared to the 7-8% levels seen at the peak of the last bull market in 2011 and 2012. Furthermore, there is no evidence that indicates a sudden pickup in sales of American Eagle Bullion coins, one of the most popular series in the US. In fact, American Eagle gold bullion coin sales declined from 19,500 oz in February to 12,000 oz in March, the lowest level for March since 2019. This compares with an average of 73,536 oz for the month of March since 2010.