Rush for gold spurs price to peak; related assets climb

Spot gold prices have rallied over the past month, with rates surging to an all-time high of $2,350 per ounce on Monday. Gold futures, too, soared to a record high on Monday.

COMEX, a benchmark US futures and options market, saw its mostly traded gold peak at $2,372.5 per oz. The record came on top of the yellow metal's rally last month, up nearly 10 percent and the strongest in the past three years, according to the Xinhua News Agency.

Amid the continuous rise in gold prices globally, domestic stocks, funds and futures related to the precious metal have also climbed.

According to market observer Wind, three gold funds topped the list of 16 mutual funds that have achieved a return rate of over 20 percent so far this year.

Additionally, the A-share market saw about 11 gold-related stocks, such as Zijin Mining and Shandong Gold Group, gaining over 12 percent year-to-date.

Wang Lixin, CEO of the World Gold Council (China), said market expectations of interest rate cuts by the US Federal Reserve have been among the key factors supporting the strong increase in gold prices.

Wang said: "Generally, when the Fed enters a rate-cutting cycle, it inevitably leads to a weakening of US Treasury yields, prompting investors to seek other wealth storage options like gold, thus driving up its prices. Moreover, lower interest rates tend to weaken the US dollar, thereby reducing the cost of investing in gold for international buyers.

"Moreover, long positions on major futures markets, including the COMEX, have significantly increased, driving more investors into the market."

According to Wang, typically, the offseason for gold sales starts when the Spring Festival ends. However, this year, due to the sustained gold prices, demand for both gold investment products and jewelry has remained relatively strong in China.

The sector has also been relatively resilient in India, another major gold-consuming country, providing strong support to the global gold market.

"These factors, coupled with the demand for safe-haven assets due to geopolitical conflicts, have further propelled the rise in gold prices. Central banks globally have continued to increase their gold reserves, providing another support for prices of the precious metal," Wang said.

According to the WGC, central bank demand — a key driver of gold demand — in recent years has seen over 1,000 metric tons of buying annually in two successive years. Net demand hit 1,037 tons last year — slightly short of the record 1,082 tons set in 2022.

China was the largest single gold buyer last year, followed by Poland.

According to the People's Bank of China, the country's central bank, the nation has increased its gold reserves for 17 consecutive months since November 2022. As of the end of March, China's gold reserves exceeded 72.7 million ounces.

Cao Liulong, chief strategist at Founder Securities, said accelerated deglobalization is leading to more dollar credit concerns, which have been a catalyst for the recent surge in gold prices.

The world may potentially usher in an era without a single reserve currency, offering gold the prospect of a decadelong bull run, Cao said.

Some experts caution that gold prices may face challenges amid a stronger greenback among other macroeconomic headwinds.

Huang Lichen, an analyst at WolFinance Technology, said investors hold high expectations for Fed rate cuts, suggesting the possibility of higher gold prices.

However, several recent economic indicators from the United States have shown improved performance, supporting a rise in the US dollar and thereby putting pressure on gold prices.

Xiong Yuan, chief economist at Guosheng Securities, said gold often experiences a round of adjustments shortly after breaking new highs, and the current long positions are already crowded, indicating a short-term risk of a pullback. However, the overall trend of gold prices in the medium- and long-term remains bullish.