Gold has always held a special allure throughout history, serving as both jewellery and the earliest form of currency. The recent surge in gold purchases, with the spot price reaching a record-breaking $2,364 per ounce on April 9th and experiencing a 15% increase since March, prompts a closer examination. Traditionally, individuals turn to gold in times of uncertainty and crisis, viewing it as a safe haven against calamity and economic hardships. Historical data also shows that gold prices tend to rise during times of war, economic instability, and inflation.
The recent surge in gold prices, however, has left many puzzled, as there are no apparent drastic global changes. In fact, inflation was worse a year ago, and the stalemate of the Ukraine war does not seem to directly correlate with the sudden increase. It is also noteworthy that despite the increasing popularity of cryptocurrencies like Bitcoin, their demand has not had a negative impact on the demand for gold. Seasoned analysts of the gold market find the current surge quite perplexing.
Of particular surprise is the fact that these purchases are not being made through the conventional exchange-traded funds (ETFs), which are typically the go-to tool for regular investors. Despite the significant increase in gold prices, there has been a decline in gold ETFs since the end of 2022.
So, who exactly is purchasing gold in bulk? The primary buyers appear to be central banks, which are increasingly diversifying their reserves away from dollars and increasing the share of reserves held in gold. China, for example, has significantly raised their gold reserves from 3.3% to 4.3%. Furthermore, prominent institutions such as pension or mutual funds are also believed to be making substantial investments in gold as speculative bets or hedges against inflation and future uncertainties.
The most intriguing development, however, is the large-scale purchases of physical gold by private individuals or companies. For instance, the American superstore Costco has started selling single-ounce bars of gold for around $2,000 and has seen monthly sales ranging from $100m to $200m, rivaling the purchases made by the Chinese central bank. These sales could possibly indicate a trend, particularly in light of the recent inflationary trends in America.
In conclusion, the sudden surge in gold purchases is puzzling, but it appears to reflect the general unease in the financial markets and the desire to seek alternative investment options amidst economic uncertainties. The coveted precious metal continues to captivate the interest of nations and individuals alike, reaffirming its historical significance as a timeless asset.