Gold Price Surpasses $2000 an Ounce

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Since the beginning of October, the international gold prices have been on a significant upward trajectory, reaching a peak last Friday (the 27th) where it broke through the $2000 per ounce mark, hitting a five-month high.

As of October 31, the COMEX gold futures pulled back slightly, yet firmly maintained itself above the $2000 threshold, currently trading around $2002.90 per ounce.

According to the latest quarterly report released by the World Gold Council, central banks worldwide continued to buy gold in the third quarter, bolstering demand for the precious metal.

Louise Street, a senior market analyst at the World Gold Council, noted that so far this year, gold demand has remained resilient, performing well despite the adverse impact of high interest rates and a strong dollar.

Continued Central Bank Gold Purchases

Data from the World Gold Council indicates that gold demand (excluding over-the-counter transactions) reached 1,147 tons in the third quarter, exceeding the five-year average by 8%. Central banks worldwide reported net purchases of 337 tons of gold in the third quarter, the third-highest quarterly net purchase amount on record.

Despite not breaking the record set in the third quarter of 2022, central bank gold purchases so far this year have totaled 800 tons, marking a new high since the Council started tracking this data. It is anticipated that central banks will continue to show strong demand for gold for the remainder of the year, indicating that annual purchase totals could remain solid.

The People’s Bank of China has been consistently increasing its gold reserves this year. As of the end of September 2023, data from the State Administration of Foreign Exchange showed that China's gold reserves amounted to 70.46 million ounces, an increase of 840,000 ounces compared to the previous month, marking the 11th consecutive month of growth in gold reserves.

In addition to central bank purchases, the report highlighted that gold investment demand reached 157 tons in the third quarter, reflecting a year-over-year increase of 56%, but still somewhat weak compared to the five-year average.

The decrease in European demand affected the total investment in gold bars and coins during the third quarter; however, the demand for 296 tons was still higher than the previous quarter and significantly above the five-year average.

Moreover, global gold ETFs saw continued outflows in the third quarter, largely influenced by investor expectations that interest rates would remain high. However, over-the-counter investment surged, reaching 120 tons in the third quarter, partly due to increased demand from high-net-worth individuals in Turkey and inventory replenishment in other markets.

Beware of Possible Corrections

Since the outbreak of the current conflict between Israel and Hamas on October 7, gold prices have rebounded sharply by about 9% from a seven-month low recorded earlier.

Recent reports from the CFTC have shown a notable increase in non-commercial long positions in gold.

Currently, U.S

Treasury yields remain near their highest levels in over a decade; historically, when bond yields are high, gold prices tend to face significant selling pressureHowever, it appears that the relationship between the two may be starting to 'decouple.'

FXTM market analyst Jamie Dutta explained that during times of geopolitical tension and market uncertainty, gold is perceived as a safe-haven asset. The boost from risk-averse sentiment has outweighed the negative impact that rising real yields on U.Sdebt (i.e., yields adjusted for inflation) typically have on gold prices.

In general, as real yields rise, gold prices tend to get pushed down since higher yields diminish the attractiveness of non-yielding gold

Record central bank buying over the past year has also provided sustained support for gold prices, which are attempting to break through $2000 and move towards the high of $2067 seen since May of this year; however, the current market for gold appears somewhat overbought.

Analyst Xia Yingying from South China Futures noted that looking ahead, the long-term environment for gold remains bullish, yet there are still short-term risks of corrections if risk-averse sentiment cools. The current geopolitical turmoil reflects the complexities of the world political scene, suggesting that global risk appetite will remain subdued, thereby benefiting gold's safe-haven demand, although investors should remain cautious of potential corrections following any decline in risk-averse sentiment.

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