Gold Continuing to Rise Globally

The gold market is maintaining its strength near a seven-week high despite 10-year U.S. bond yields nearing 5%. This resilience is notable, given the ongoing lackluster investment demand with outflows from gold-backed exchange-traded products. The SPDR Gold Shares ETF has seen outflows of more than 17 tonnes, even as gold prices have risen by nearly 8% from recent seven-month lows.

Market strategists at the World Gold Council (WGC) have attributed gold's resilience to growing Asian demand, which is counterbalancing the weakness in Western markets. According to John Reade, the WGC's chief market strategist, and Joseph Cavatoni, North American market strategist, physical demand in Over-the-Counter (OTC) markets is playing a significant role in gold's strength.

They noted that the OTC market is challenging to gauge, but anecdotal evidence suggests that gold is flowing to Asia at a faster pace than many analysts and investors realize. Factors driving this demand include global geopolitical risks, capital flight due to concerns about a weak Chinese economy, and diversification from real estate investments by Chinese investors. Additionally, Japanese consumers are turning to gold to protect their purchasing power as inflation begins to rise in Japan.

Reade and Cavatoni believe that Western investment demand may pick up in late 2024, despite expectations of continued restrictive interest rates by the Federal Reserve. They do not anticipate significant weakness in the precious metal and expect the gold market to strengthen in the second half of the year. The fact that gold has hit record highs in multiple currencies over the past year signals healthy global demand for the precious metal.v