In recent weeks the price of gold has recorded a strong rally setting a new historical record.

The price of gold in April 2023 was at $2,000 an ounce and around those levels for about all of 2023.

In January 2024 it reached 2,035 and suddenly in the last few weeks the price rallied, towards the levels of 2,350 dollars.

Part of the gains are fueled by optimism that the Fed was approaching a rate cut, as higher interest rates usually work negatively for gold. Lower borrowing costs generally favor gold, which pays no interest and gets squeezed when Fed rates are high.

The rise in inflation that we have been experiencing in recent years, but above all the assessment that there will hardly be a large de-escalation of it quickly helps the rise in the price of gold, as the rise in the price of gold is more aggressive in periods of inflationary pressures. Also, the aggravation of geopolitical developments in Ukraine and the Middle East increases the demand for the yellow metal.

The recording of new historical highs for gold worries some analysts, as they believe that geopolitical tensions and macroeconomic data cannot justify such a large rise.

Geopolitical tensions no longer seem to be enough to justify such a big rise, amid a lack of any apparent reason for the sudden rally that began in mid-February. Gold has rallied more than 18% since then.

At the same time, the unprecedented rally of the precious metal is taking place despite the rise in US Treasury yields, which usually puts pressure on the price of gold. Rising yields make interest-bearing assets more attractive than gold.

Its analysts Commerzbankthe second largest bank in Germany, estimate that “developments in the gold market have the characteristics of a rational bubble”.

Commerzbank’s commodities department points out that there is a divergence between the price of gold and the fundamentals, which cannot continue forever.

However, its analysts JP Morgan “see” the price of gold at $2,500 per ounce, while its analysts Citi appear more optimistic and place the price of gold at $3,000 an ounce in the next 12 to 18 months.

Demand from central banks

Increased demand from central banks can largely explain the rise in the price of the yellow metal.

Gold purchases by central banks have reached record levels in recent years as financial institutions look to diversify their holdings and reduce credit risks. China and Russia are the top buyers of bars, followed by India, Turkey and Brazil.

According to a report by the World Gold Council (WGC), central banks worldwide have for two consecutive years exceeded 1,000 tons of net purchases.

The People’s Bank of China reports an increase in gold inventories for the 17th consecutive month in March. Since the beginning of 2024, it has increased its gold reserves to 2,260 tons from 2,070 tons in 2023, while a significant increase in reserves, in the first quarter of 2024, is also recorded by India and Poland.

First in gold reserves, according to data from the third quarter of 2023, was the USA with 8,133 tons, with a total value of 489 billion dollars, and second was Germany with 3,352 tons, worth 201 billion dollars.

Italy followed with 2,451 tonnes worth $147 billion, France with 2,436 tonnes worth $146 billion, Russia 2,332 tonnes worth $140 billion and China with 2,191 tonnes worth $131 billion.

At the end of the third quarter, Turkey had 478 tons, worth $28 billion, Greece 114 tons, worth $6.87 billion, and Cyprus 13.9 tons, worth $836 million.