Price Records Shattered as Central Banks Fuel Bullion Demand
Gold’s record-breaking rally has sent shockwaves through markets, shattering price records and leaving investors wondering if this is the start of a new gold era. With central banks speeding up purchases and geopolitical tensions fueling demand for safe-haven assets, gold has surged past $2,870 per ounce, a price not seen since 1980. Trade tariffs imposed by the Trump administration have further amplified demand for gold, sending prices soaring.
A Perfect Storm of Debt, Inflation, and Deglobalisation
Macro strategist Otavio Costa believes that the world is experiencing a real-time history lesson on the significance of gold, citing a combination of factors reminiscent of past economic crises. Government debt levels have reached historic highs, echoing the debt problem of the 1940s, while inflationary pressures are mounting in a way that resembles the challenges of the 1970s. The US fiscal deficit is widening, and G7 economies are entering a period of manufacturing revitalisation and deglobalisation, making gold an increasingly attractive hedge against financial instability.
Central Banks Lead the Charge
A key factor behind gold’s bullish trend is the unprecedented pace of purchases by central banks. In 2024 alone, central banks acquired more than 1,000 tonnes of gold, with buying accelerating sharply in the fourth quarter to 333 tonnes. Goldman Sachs estimates that global central bank demand on the London over-the-counter market has surged fivefold since the freezing of Russia’s central bank assets in 2022, reflecting growing fears of potential financial restrictions. Goldman Sachs remains bullish on gold, maintaining its long position as its “highest conviction trade” across commodities.
Buyers Remain Bullish
Commodities analysts at Goldman Sachs believe that gold’s rally is far from over, citing concerns over tariff escalation, geopolitical oil supply disruptions, and debt fears. Tariff tensions between the US and China are expected to escalate, potentially adding another 20 percentage points to tariffs on Chinese imports. The rush for gold has led to disruptions in the London gold market, with traders scrambling to borrow bullion from central banks as shipments to the US see a spike. However, experts believe that the situation is temporary and mainly a logistical reshuffling, not a fundamental shortage of gold.
Is Silver the Next Big Trade?
While gold is making headlines, silver could be the under-the-radar trade with strong potential upside. Unlike gold, silver has significant industrial applications, making it behave like a hybrid between a precious metal and an industrial commodity. Callum Thomas believes that silver is currently undervalued relative to gold and could benefit from an expected reacceleration in global industrial production this year. With both structural and cyclical factors still in play, some indicators suggest that gold’s rally is far from over, leaving investors and central banks alike betting big on bullion.
SOURCE: Ref Image from The Economic Times
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