New gold price record at 2,431 dollars per ounce on April 12, close to the target of 2,475 dollars defined by technical analysts! The market has since begun a consolidation movement (that is to say a bearish correction, Editor’s note), with prices returning towards $2,300. While real rates in the United States have resumed an upward trend, this movement seems to have completely caught many investors, especially Western ones, on the wrong foot if we judge by the continued decline in outstanding amounts of ETCs backed by the physical gold.
Since the start of the year, the equivalent of 147 tonnes have exited ETCs backed by physical gold, whose overall outstanding amounts (2,515 tonnes) have returned to their lowest level since September 2019, and down 27%. compared to their October 2020 record (3,453 tonnes). It is clear that the inverse relationship between the evolution of gold prices, that of US real rates – which increased by 0.4 percentage points (2.27%) in April and the US dollar, up 1.65% in April against the main currencies (Dollar Index) seems well and truly broken…
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Gold: “the planets align” for an explosion in prices
China is forced to curb the Chinese appetite for gold
On the other hand, this did not at all disturb the Chinese who seem to be in a real frenzy for the yellow metal, to the point that the authorities had to take measures to curb their appetite for buying gold. On April 12, the Shanghai Gold Exchange (SGE) has raised margins on its futures contracts and drastically limited the number of contracts per participant. This decision, seemingly coordinated with the second increase in COMEX margins, aims to prevent gold prices from rising too quickly. Although this decision caused a slight chill, leading to a fall in prices, it did not break the trend which remains rather sustained for the moment.
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China’s central bank is buying gold with all its might
It is true that the Chinese central bank (PBoC) also provides real support for the price of gold, accumulating the yellow metal month after month. Rarely have gold imports by China been so significant. Note that on the other hand, the amount of American government bonds held by China reached a 14-year low last October at $770 billion, a reduction of 25% compared to 2021 – while on the other hand, of Saudi Arabia, outstandings were at their lowest in 6 years.
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The World Gold Council has just published its report on the major trends in the gold market, demand and supply, observed during the 1st quarter of 2024. It shows that the 5% contraction in demand (1,102 tonnes) compared to the 1st quarter of 2023 is essentially linked to the net sales of ETFs backed by physical gold. Including OTC transactions (+136 tonnes), total demand even increased by 3% (1,238 tonnes), the largest since the 1st quarter of 2016. Emerging central banks once again stood out with net purchases totaling 290 tonnes. tonnes of gold, a record for a 1st quarter, Turkey, China and India having led the way, accumulating 76 tonnes between them. Concerning China, March constituted the 17th consecutive month of accumulation.
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Jewelry demand (479 tonnes), although penalized by the very sharp rise in gold prices, remained at a good level, 3% above the average of the last 5 years, but in slight contraction ( -2%), however, compared to the first quarter of 2023. While Indian jewelry demand increased by 4% (95.5 tonnes), Chinese jewelry fell by 6% (184 tonnes). Demand linked to investment, down 28% (199 tonnes) was the main detractor in the 1st quarter. If demand for gold bars and coins increased by 3% (312 tonnes), net sales of ETFs (114 tonnes) more than offset this trend. Note that demand for ingots and coins was also particularly dynamic in India (+19%, to 41 tonnes) and especially in China (+68%, to 111 tonnes).
With the price of gold at more than 2,000 euros, how high will it rise in 2024?
The boom in artificial intelligence also supports gold prices
Artificial intelligence is also impacting the demand for gold, through technology. Gold demand linked to this segment (78.6t) increased by 10% in the 1st quarter, mainly in the field of electronics (64.4t), up 13%. Faced with this demand, the total gold supply increased by 3% in the 1st quarter, due to record mining production (893 tonnes), up 4% and also a 12% jump in recycling. (350 tonnes), encouraged by the sharp rise in gold prices.
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In this context, the World Gold Council admits to having been positively surprised by the trend in gold prices, mainly supported by purchases by emerging central banks and investment in bars and coins while purchases of physical gold in West via ETCs are in clear decline. It is difficult to anticipate what central banks will do during the rest of 2024, which could generate more volatility on the market, and especially since the current level of prices will continue to encourage recycling and production of new deposits.
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Better on the stock market for the prospects of shares of gold mining companies
As for gold mining companies, the situation is finally starting to improve. The first published results seem to indicate that a high point may have been reached regarding costs, although still high: around $1,450 per ounce (AISC). In fact, profit expectations for the coming 12 months have risen significantly by more than 20%. There is still a long way to go to reach the November 2020 peak – 28% higher – but the trend is encouraging.
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If gold mines have started to catch up with physical gold, with an increase of more than 30% since their low point at the end of last February, when gold prices gained 17%, the potential remains very significant as long as they continue their operational efforts. At its lowest in 40 years, the valuation of the sector on the stock market still reflects gold prices significantly lower than the current level.
