According to Suki Cooper - Precious metals analyst at Standard Chartered (a multinational bank headquartered in London, UK), the wave of buying through Asian ETFs is the latest important driver for gold prices to increase. However, US economic stimulus measures and easing geopolitical tensions could see gold prices fall by about 10% by the end of the year.
Cooper pointed out key factors driving gold prices higher recently on Thursday morning.
There are many factors leading to the increase in gold. Partly starting from 2022 when central banks are stepping up buying, this is the core driving force to support sustainable growth; the bearish side is very well supported. But the big turning point in the past three months has been cash flow into ETFs. This factor has hardly appeared in much of the 2024 rally, but this year has created an additional catalyst, she told Bloomberg Television.
What makes the rally sustainable it takes five years to break $2,000 an ounce steadily, but just a few weeks to stay above $3,000 an ounce is because there are many supportive factors.
It is not just a traditional correlation with real yields. There are also concerns about the risk of recession, tariffs, and the possibility of a trade war. There are also concerns about geopolitical tensions. So there is too much momentum for gold prices to stay high.
When asked if she thought the long-term gold buying trend was overwhelming after prices increased by 40% in the past 12 months, Ms. Cooper pointed out some indicators showing that there was much room for increase.
When you look at the charts, it seems like prices are at their peak and price action is somewhat overwhelming. However, when considering specific indicators, the buying situation is not too crowded. The short-term investment situation is at a low level as at the beginning of 2024. The peak of short-term position was in 2019, so it is not yet overloaded.
Regarding ETF cash flow, it is still about 400 tons lower than the peak in 2020. Although cash flow has increased in the US and Europe, new demand has come from China, and I think this will make this year's price increase different, because there is new demand," said the expert.
When asked about the next level of central banks' strong purchases after two consecutive years, and whether this is a long-term restructuring, she replied:
Yes, because not just one central bank or one region participates. We see many different central banks participating, with many reasons such as asset allocation goals, diversification or long-term strategies. Although purchasing volumes have declined in the recent quarter as prices hit record highs, demand continues.
Speaking about Standard Chartered's year-end gold price forecast, Ms. Cooper said that prices are expected to fall by about 10% in the next 7 months.
We think there are many factors that could reduce the gold price increase by the end of the year. First of all, it is the weakening in correlation with real yields, while the USD is strengthening. Gold has benefited greatly from safe-haven demand in the context of many uncertainties.
However, if interest rate cuts appear at the end of the year, it could be a surprise factor that helps gold prices increase again. If US stimulus measures and geopolitical risks start to cool, we could see gold prices stabilizing at a high level, remaining above $3,000/ounce but possibly past the peak by the end of the year," Suki Cooper added.
