Gold Prices Surge Globally, Central Banks and Retail Buying Drive Momentum
In recent weeks, gold prices have experienced a significant surge, with the yellow metal witnessing an increase of over 11% in India alone. A recent report from Goldman Sachs highlights that this surge is not solely driven by traditional factors, indicating a shift in the dynamics of the gold market.
The report underscores the significant role played by new incremental factors, particularly the surge in accumulation by Central Banks in emerging markets (EM) and increased retail buying in Asian markets including India. Despite expectations of fewer Federal Reserve rate cuts, strong growth trends, and record-breaking equity markets, gold has rallied by 17 percent over the past two months.
Analysts at Goldman Sachs note that unconventional factors, supported by current macroeconomic policies and geopolitical tensions, have been pivotal in driving gold’s bullish momentum. The anticipation of potential Federal Reserve rate cuts later in the year, coupled with right-tail risks from the US election cycle and fiscal policies, further reinforces the positive trajectory of gold prices.
While the report outlines potential measures that could control gold’s bullish momentum, such as a peaceful resolution to geopolitical tensions and stabilization in China’s growth concerns, the likelihood of significant impact in the near term remains low. The report expects continued bullish momentum in gold prices, emphasizing the evolving dynamics and the influence of unconventional factors driving the precious metal’s value.
The increase in gold prices poses challenges for consumers, particularly in countries like India where gold holds cultural significance, impacting the economy, current account deficit, and trade balance. Both gold and stocks are currently reaching record highs, with both gold and Sensex surpassing the magical 75,000 figure in India.
