Central Bank and Investor Demand Are Driving Gold Prices Higher

Summary

Jeffrey Christian of CPM Group discusses gold investment and Central Bank demand, emphasizing stock demand's influence on gold prices. Despite political and economic uncertainties, gold prices remain strong, potentially rising further. Christian highlights technical analysis, specifically the 'measured move,' predicting a second $800 upward move, aligning with economic fundamentals. He notes increased global investment demand, particularly in gold ETFs and futures, and a slowdown in Central Bank purchases due to higher gold prices. The discussion also addresses the US dollar's stability and China's and Russia's gold market activities.

Takeaways

• 📈 Gold's price direction and levels are primarily determined by stock demand from private investors and central banks.
• 🌟 Gold is currently trading sideways around $2,538 and has been doing so for the last couple of weeks, indicating a potential base building.
• 🌍 Political anxiety and economic uncertainty globally are likely to keep the price of gold strong and possibly push it higher in the coming quarters.
• 📊 CPM Group's analysis combines fundamental research with macroeconomic models to provide a long-term view of market trends.
• 📚 Technical analysis, especially the 'measured move' pattern, has been effective since the mid-1970s and suggests a potential second $800 upward move in gold prices.
• 💹 The US dollar is up 4% from a year ago, contrary to popular beliefs of a tanking dollar, and is up 2.6% from the start of the year.
• 🏦 Investors are buying more gold this year, with expectations of around 32 million ounces, a significant increase from the recent past.
• 📈 Gold ETF holdings have seen an increase since April, reflecting a growing interest in gold as prices rise.
• 🌏 Gold demand is global, with significant flows into Hong Kong and a notable doubling of gold held by Chinese ETFs in the last 20 months.
• 💼 Central banks have continued to buy gold, but at a reduced rate compared to previous years, showing some price sensitivity in their purchases.
• ⏳ The People's Bank of China has not added to its gold reserves since April, indicating a strategic pause in response to rising gold prices.

Q & A

What factors primarily determine the price of gold, according to Jeffrey Christian?

Jeffrey Christian emphasizes that stock demand by private entities, investors, central banks, and monetary authorities is the key factor determining the direction and levels of gold prices.

How does Jeffrey Christian describe the current trend in gold prices?

He notes that gold has been trading sideways around $2,538 to $2,550 recently, possibly building a base, with continued strength expected due to political and economic uncertainties.

What is the 'measured move' that Jeffrey Christian refers to in the context of gold price analysis?

A 'measured move' refers to a pattern in technical analysis where a significant upward or downward move is followed by a 50% retracement and then another move in the same direction. Jeffrey Christian mentions that such a pattern has been observed in the gold market since the 1970s.

What are the long-term and short-term views of CPM Group regarding gold prices?

The CPM Group integrates microeconomic and macroeconomic analyses to form a long-term view of gold prices. They then adjust this view with short-term fundamentals, creating predictions for periods like one month, three months, two years, and three years.

How has investor demand for gold changed in recent years, according to the transcript?

Investor demand for gold spiked during the pandemic, reaching almost 40 million ounces in 2020. Although it decreased in subsequent years, it is expected to remain strong through this year and next, with investors buying about 32 million ounces in 2024.

Why have US Mint sales of gold coins declined, despite strong global demand for gold?

US Mint sales of gold coins, such as Gold Eagles and Buffaloes, are down 64% this year. This decline is attributed to a significant secondary supply of resold coins meeting much of the demand, rather than a lack of interest in gold itself.

What trend has been observed in Chinese gold ETFs since the beginning of 2023?

Chinese gold ETFs have seen their holdings more than double from 1.5 million ounces to about 3 million ounces by the end of August 2023, indicating strong investment demand for gold in China.

How has the People's Bank of China responded to rising gold prices in 2023?

The People's Bank of China stopped adding gold to its reserves in April 2023 due to price sensitivity. It had been buying gold consistently from November 2022, but halted purchases when prices spiked.

What is Jeffrey Christian's view on the role of futures and options in the gold market?

He argues that futures and options are crucial for the gold market, enabling investors to quickly gain exposure to rising prices and helping producers, refiners, and others hedge their price exposure.

What impact has the war in Ukraine had on Russia's gold reserves?

Since the invasion of Ukraine, Russia has been using its gold reserves to finance its operations, leading to fluctuations in its gold purchases and sales. The reserves are being used to pay for imports, armaments, and other needs.