Gold is gleaming brighter than ever all across the globe, though some would say the shine is even more intense in India and China. Still, wherever one looks, precious metals prices continue to set new records with each passing day.
India has seen gold prices increase by over 19% so far in 2024 as compared to the previous year. In dollar terms, it has gained about 30%, closing at approximately US $812 (Rs 76,000) per 10 gms on the Multi Commodity Exchange (MCX). In international markets, gold touched US $2,665 an ounce on Wednesday, surpassing its earlier high of roughly $2,648 an ounce. All in all, the precious metal has surged over 27% since the start of 2024, setting it on a course for its best annual performance in 14 years.
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ETFs See Global Movement
Gold Electronic Trading Funds are not far behind gold prices. Last month, global physically-backed gold ETFs saw inflows of US $2.1 billion, marking the fourth straight month of improvement. According to a World Gold Council (WGC) report, all regions posted positive flows, with Western funds contributing the most.
Alongside these inflows, a 3.6% rise in gold prices pushed global assets under management up by 4.5% to a new month-end peak of US $257 billion. Meanwhile, holdings continued to recover, increasing by 29 tons to 3,182 tons by the end of August.
The WGC report noted that in August, North America saw inflows for the second consecutive month, adding US $1.4 billion. Contributing factors included easing inflation, a slowing labor market and dovish signals from the Fed’s meeting minutes, foreshadowing the September rate cut. As a result, both the US 10-year Treasury yield and the dollar saw sharp declines. This reduced opportunity costs, driving gold prices to a record high and boosting ETF inflows.
Meanwhile, geopolitical tensions in the Middle East and the Russia-Ukraine conflict also added to the surge. As far as European funds go, they attracted $362 million in August, marking the fourth straight month of inflows, though growth has slowed. Switzerland and the UK led the gains.
What’s the (Gold) Rush?
There are many factors contributing to this modern “gold rush.” To start off, any major global crisis or a cut in interest rates tends to send precious metals prices shooting up, as gold is supposed to be a safe form of investment during times of strife. The recent aggressive cuts in key interest rates by the U.S. Federal Reserve was one reason for the recent surge in buys. Many analysts believe another 50 basis points cut may come before the end of 2024 and next year, which would boost gold prices even further.
India’s apex bank, the Reserve Bank of India, will also likely start cutting rates in the October-December quarter. Speaking to LiveMint, Jigar Trivedi, Senior Research Analyst – Currencies and Commodities at Reliance Securities, highlighted the fact that the US dollar was down over 1% year-to-date, with economic data failing to inspire confidence. Jigar expects continued weakness in the dollar index over the next few months, which should support precious metals prices.
According to Trivedi, festival buying from India may be limited given the high gold prices. However, political uncertainty in the U.S. and the ongoing geopolitical tensions will likely boost gold’s safe-haven appeal in the coming three months.
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Exploring the “China Factor” in Precious Metals Prices
Consumers in China have only added to the surge in gold buying. When 2024 began, Chinese investors, including the People’s Bank of China, started buying large amounts of gold to counter the slowdown in other areas, like real estate. Indeed, China has been the world’s largest gold consumer for the last decade or so, even outpacing India.
Moreover, the country is also the world’s biggest producer of the yellow metal. In an exclusive interview with China Daily, CEO of WGC David Tait said China is expected to play an even larger role in shaping the global future of the bullion market in the years to come.
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