Moneycontrol Pro Panorama | Golden opportunities

Central banks continue to buy gold every quarter. Except for selling by Turkey in the June quarter, central banks continue to hoard gold.

Gold has proved its worth as a safe haven for investors during times of uncertainty, with prices soaring to a fresh dollar-pegged peak in the June quarter before experiencing a market correction and subsequently trading under the symbolic $2,000 per ounce mark. Gold touched new peaks in all currencies it is traded in.

Now with Fitch downgrading US sovereign debt, the attraction for gold is expected to increase. Central banks continue to buy gold every quarter. Except for selling by Turkey in the June quarter, central banks continue to hoard gold.

Net purchases at 103 tonnes between April and June were down 35 percent over the previous year. Yet, the first half of 2023 saw record-breaking central bank purchases that totalled an impressive 387 tonnes. Turkey, being the top buyer in the first quarter of calendar 2023 sold gold in April and May 2023, but resumed buying in June. Selling was on account of a temporary ban on gold imports in the country which was later lifted.

Central banks' buying is expected to continue in the second half of the year, which is traditionally the better half. During the June quarter, central banks from China, Singapore, Poland, India and the Czech Republic were the top buyers.

Besides central banks, gold found support from retail buying. Jewellery consumption in the second quarter strengthened modestly by three percent despite historically high prices in most markets. India was an exception as demand slowed sharply due to high prices. China's contract saw record buying as pent-up demand picked up post an opening of the economy from the COVID lockdowns of 2022. With its real estate in a shambles, gold as an investment is increasingly finding favour with the Chinese.

Global gold jewellery consumption in the second quarter was 476 tonnes with Chinese consumers buying 132.2 tonnes of jewellery, a growth of 28 percent while Indian consumer demand was lower by 8 percent from 140.3 tonnes to 128.6 tonnes. In India, there was a shift from buying 24-carat gold to 18-carat as consumers found it an affordable alternative.

Gold also got support from investment demand in the form of bars and coins, which was 20 percent higher over the previous year, at 256 tonnes. Here too, demand from China saw a growth of 32 percent while Indian demand was lower by 3 percent.

Despite a strong equity market and high bond yields, gold exchange-traded funds (ETFs) saw buying in all markets, apart from Europe. A slowing economy and higher interest rates saw large withdrawals from the European market. The US posted a positive inflow despite strong sales in June.

In sum, gold's fundamentals remain as robust as ever. Central banks, jewellery demand, and investments collectively reinforce a buoyant market. Given the current economic landscape, there is little that suggests a change in these factors in the near future.

Given the looming global uncertainties, gold will continue to be an investment opportunity that cannot be overlooked.

Beijing holds China’s economic future in its hands (republished from the FT)

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