Gold prices continue to break records in 2024. Central banks lead growth.

It’s been nearly 50 years since US gold futures had their first day of trading, and the precious metal has found a great way to celebrate: a record 28 settlements so far this year.

And gold may still have room to run, thanks to strong buying by Western investors and global central banks.

Most Read on MarketWatch

“Central bank gold demand has increased over the past 5 years, swallowing almost 1 in 10 ounces produced by the mining sector based on official data,” Adrian Ash, director of research at BullionVault, said in a comment this week.

“The seemingly relentless appetite for gold among central banks has become increasingly important to gold’s underlying run, both in terms of fundamentals and broader market sentiment,” he said.

The total amount of gold held in central bank reserves has risen by almost 19% by weight since the summer of 2004 and has risen sevenfold – to $2.4 trillion in US dollars – led by Russia, China, India and Turkey. according to Ash.

Continued gold buying is “at or very close to exhausting the ‘free inventory’ of tradable gold,” Paul Wong, market strategist at Sprott Asset Management, told MarketWatch.

The world’s official gold holdings totaled 36,089 metric tons in May 2024, according to the World Gold Council, which cited calculations from the International Monetary Fund. This is a considerable amount, given that market estimates suggest that approximately 212,582 metric tons of gold have been mined throughout history, according to the World Gold Council.

Gold prices are rising because central banks are buying — likely diversifying away from U.S. Treasuries amid concerns about the U.S. fiscal situation, Torsten Slok, chief economist at Apollo Global Management. said MarketWatch.

On Friday, the most active December gold futures contract GC00 GCZ24 rose to a record high of $2,538.70 an ounce on the Comex and touched a record high of $2,537.80.

Reading: Gold extends record high as broad market volatility draws buyers

The story continues

Gold’s latest moves come as CME Group Inc. CME aims to mark 50 years since the first day of gold futures trading on its exchanges – December 31, 1974.

Geopolitical uncertainty remains high, which supports gold. Other investment opportunities for Chinese households, such as housing and stocks in China and Hong Kong, have declined, increasing demand for gold from Chinese households, Slok said.

High demand from central banks

Central bank demand for gold has increased after the US and its allies imposed sanctions on Russia following its invasion of Ukraine, said Brien Lundin, publisher of the Gold Newsletter. “After that dollar harmonization, central banks sought to insulate themselves by moving reserve assets from the dollar into gold,” he said.

Reading: Why global gold demand marked its best quarter in 8 years

So 2022 was a record year for central bank gold purchases, with official purchases accounting for about a third of annual gold production, Lundin said. “They bought almost as much the following year and so far this year they are on track to set a new record.”

In recent months, however, the central bank’s purchases appeared to have slowed.

China was a “very big player” in the market at the start of the year, but “notably has not announced any acquisitions in recent months,” Lundin said.

There is some speculation that China has not stopped buying gold and has only stopped announcing purchases to keep the price down, he said, citing a recent article by analyst Jan Nieuwenhuijs published July 29 on Gainesville Coins.

While central bank purchases have slowed in recent months, central banks remain the “biggest story” for gold over the past two years, said Joe Cavatoni, market strategist at the World Gold Council.

Gold purchases by central banks were 3 percent above their five-year quarterly average in the second quarter, “extending the positive long-term demand trend in this sector,” he told MarketWatch. “This is still a very healthy level of buying.”

East meets Western buyers

Meanwhile, Lundin pointed out that there had been a “relative absence” of Western gold buyers. But with the Federal Reserve on track to cut interest rates starting next month, “Western investors are coming into the market and moving gold higher.”

There is no real reason to expect either central banks or Chinese investors and servers to pull back on gold purchases as Western purchases come in to support the price, he said.

So we could see “the first instance in the history of gold as an investable asset” where buyers from the East and the West are buying gold, Lundin said, referring to the post-1971 period. The US monetary system was tied to gold reserves, and “gold was money” until 1971, when President Richard Nixon ended the so-called gold standard.

If the market sees both the West and the East buying gold, that could “lead to much higher gold prices than we’re seeing today,” Lundin said.

Most Read on MarketWatch