In a report released last week, Citi strategists forecast a substantial rise in physical gold investment demand through 2024 and 2025.
The bank anticipates that gold prices will surpass $2,500 per ounce in the near term and reach the $3,000 mark next year. Average quarterly prices are expected to climb relentlessly and hit a trading range of $2,800 to $3,000 per ounce by 2025.
Based on demand data provided by the World Gold Council for the second quarter of 2024, Citi analysts suggest that China's jewelry and retail sectors might pose a hurdle to bullion consumption in the third quarter. However, this is likely to be fully offset by increased official sector purchases, over-the-counter and ETF investment demand, as well as India's tax policy, which is seen as stimulative for gold.
The multi-year decline in gold ETF holdings that began at the end of the second quarter could boost investor interest in bullion amid potential interest rate cuts by the US Federal Reserve. The bank expects gold investment demand as a percentage of mine supply to increase by 9 percentage points to 83% in 2024 and by a further 2 percentage points in 2025. This would represent the highest level since 2020 when gold prices surged by 25% and spot trading topped $2,000 per ounce for the first time.
Reflecting on the robust investment demand for gold in the 2010-2012 period following the Great Financial Crisis, Citi analysts assume that the financial "price floor" for gold in 2024 has shifted higher. They anticipate active buying on market dips.
Fed Chair Jerome Powell made no specific comments on future monetary policy at a press conference following the July meeting but hinted that a rate cut could be on the table in September provided that inflation continues to ease. This could support investment flows, analysts believe.
Gold demand from central banks is also expected to remain strong through 2024 and 2025, despite a quiet period of purchases by the People's Bank of China in May and June.
Citi has lowered its outlook for central bank gold demand in 2024 by 14%, now projecting a total of 941 tons. Despite this downward revision, the forecast still represents a robust figure. The bank anticipates that the People's Bank of China will resume its gold purchases in 2025, potentially influenced by new US trade tariffs.
The report also highlights a significant drop in demand for gold bars and coins in the second quarter of 2024. This decline is attributed to weaker inflows from Western markets. In particular, gold bar and coin demand fell by 16.7% quarter-on-quarter and 4.6% year-on-year, totaling 261 tons. Record-high equity markets, low volatility, and a strong dollar likely deterred North American buyers.
