Gold has had a stellar year so far. After trading at about US$2,000/troy oz from April 2023 to February 2024, gold prices have soared, reaching a record high of more than US$2,420/troy oz in mid-May, before moderating to about US$2,350/troy oz in early June. Prices are holding near that level even though macroeconomic and geopolitical uncertainties—including Israel’s offensive in Gaza, Iran’s shadow war with Israel and rising US-China tensions—burnish gold’s appeal as a safe-haven asset. Central bank purchases and expected interest-rate cuts by the Federal Reserve (Fed, the US central bank) have also supported the rise in the metal’s value.

Although the price of gold has receded from its record high, it remains 10% higher than at the start of the year and is now trading at about US$2,330/troy oz. Gold prices have traded higher this year despite elevated interest rates and a stronger dollar—factors that typically do not support the metal. Central bank purchases by emerging countries, notably China, have also propelled gold’s rally. Central banks account for about a quarter of the demand for gold, with purchases expected to reach a record 1,100 tonnes this year.

Central banks in emerging economies will probably continue their purchases as they diversify their foreign-exchange holdings away from the dollar. For emerging economies, especially those not allied with the West like China and Turkey, sanctions against Russia’s dollar-denominated assets are a major concern. These countries have accelerated the diversification of their reserves as a result of the sanctions.

China’s central bank has been aggressive in its purchases of gold. The People’s Bank of China bought gold for 18 consecutive months, before halting purchases in May after the metal rallied to a record high. Retail and investment demand in China, the world’s biggest consumer of gold, has also been resilient. Demand has been strong, as the property sector crisis has limited investment options for retail buyers. We expect consumption in China to lift global demand for jewellery by 1.5% this year, even though record-high prices will moderate purchases in other regions.

A softening in US inflation will boost the metal’s rally. The US headline consumer price index was flat month on month in May, bolstering expectations that the Fed will cut rates twice this year, in September and December. The European Central Bank (ECB) has already cut rates this year.

What next?
Prices will continue to strengthen in 2024-25, as the Fed will start to reduce its policy rate and the ECB will cut rates further. We expect gold prices to remain elevated in 2024, with the price averaging US$2,312/troy oz, up by 19% from 2023. We forecast that the Fed and the ECB will continue to lower interest rates next year, and therefore expect gold prices to increase further to average US$2,498/troy oz in 2025. Demand will remain strong on the back of central bank and retail purchases.

Additionally, softer interest rates and safe-haven demand will revive interest in exchange-traded funds (ETFs). We expect net investments in gold ETFs to turn positive this year. Assuming that monetary policy easing continues in 2025, we expect gold ETF net inflows to reach 200 tonnes that year.