This round of gold's rise is unlike any other! Is a "perfect storm" brewing?

Gold futures continue to set historic highs, with prices reaching $2,555.20 per ounce on Monday, making a 400-ounce gold bar worth $1,022,080.

This year, the price of this precious metal has surged significantly, becoming the second-best performing asset globally, only behind Bitcoin.

Gold has risen by 23% so far this year, surpassing the Nasdaq Composite Index, which has gained 18% this year.

Gold are buyed at record rates

According to data from Bank of America Global Research, gold ETFs saw their largest inflow in four weeks last week, attracting $1.1 billion. However, the fund has experienced a net outflow of $2.5 billion this year to date, suggesting that the forces driving gold’s rise may come from sources beyond traditional capital flows.

Central banks, particularly those in developing countries, have been buying gold at record rates. Data from the World Gold Council shows that central banks purchased 290 tons of gold in the first quarter alone, surpassing the previous record for the first quarter of 2023 and pushing central bank gold purchases in 2024 to historic highs, with expectations to exceed 1,000 tons.

“The long-term trend of gold purchases not only remains strong but continues to be driven by emerging market banks,” the World Gold Council stated.

In this regard, the Turkish central bank leads the “central bank gold purchase rankings” this year, buying 30 tons of gold in the first quarter, raising its gold reserves to 570 tons.
The Chinese central bank purchased 27 tons of gold in the first quarter, marking its 17th consecutive quarter of gold purchases, bringing its holdings to 2,262 tons. Other notable buyers include the central banks of India, Kazakhstan, the Czech Republic, Oman, and Singapore’s Monetary Authority.

The central bank gold-buying spree has solidified gold's position as a reserve asset. According to Bank of America data, gold has now surpassed the euro to become the world’s second-largest reserve asset, trailing only the U.S. dollar, and accounting for 16% of global central bank foreign exchange reserves.

Bullish potential for the future

The metal’s stellar performance is attributed to its unique status as a tangible asset, with the lowest correlation to stocks, making it a safe-haven asset that can hedge against market volatility and inflation. StockTwits market research director Tom Bruni commented, “We see gold being used as a hedge against uncertainty.”

Bruni also highlighted that gold’s price movement has attracted many traders, “As gold breaks past the 2011 high, it is drawing significant attention from trend followers and technical analysts.”

Bank of America also noted that the recent rise in gold is different from other surges this century, indicating bullish potential for the future.

The bank pointed out that this is the third major gold rally in twenty years, but “households have missed this rally.” The previous two rallies, from 2004 to 2011 and from 2015 to 2020, saw significant inflows into gold ETFs. However, according to external media, gold and gold mining ETFs have seen outflows of $6.4 billion over the past year.

If the recent large inflows into gold ETFs continue, this trend may signal that a “perfect storm” of retail, institutional, and central bank gold buying is brewing.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.