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Analysis: Gold on Track for Record Prices Gold Set for Further Record Prices in 2024 and 2025

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Gold prices have been on a wild ride, with record-breaking averages and daily settlements leaving investors breathless. In 2020, the yellow metal hit a record average of US$1,775.58 per ounce, marking a staggering 37.2% increase from the previous year. The upward trend continued over the next three years, with an average of US$1,940 per ounce in 2023, up 7.4% this year through October.

Jeffrey Christian managing director CPM Group
Jeffrey M. Christian

But it’s not just the averages that are noteworthy. The daily records have also been shattered, with gold touching a dizzying US$2,152.30 per ounce on an intraday basis on December 3, following a new record high settlement price of US$2,089.70 on December 1.

In 2023, CPM Group projects an average price of US$1,950 or higher, with predictions of prices ending the year above US$2,000 per ounce. Looking ahead, CPM expects gold prices to soar well above US$2,000 in 2024 and possibly even exceed US$2,100 per ounce in 2025.

However, despite these monumental achievements, the gold market has witnessed perplexing skepticism from investors, mining executives, and observers. Many have expressed bewilderment at the seemingly low gold prices. It’s clear, though, that the fault lies not in our stars but in ourselves – our expectations are simply too great for the extraordinary journey that gold prices have undertaken.

Indeed, gold prices mirror the intricate interplay of supply and demand fundamentals, the increasingly hostile political landscape, and the state of the global economy. These three elements converge to chart the course of all commodity prices, including gold, demanding a rational and unbiased outlook.

Getting Back to Basics

Behind the scenes, various factors, such as mine production, secondary recovery of gold from scrap, fabrication demand, central bank activities, and investment demand, influence the intricate dance of gold prices.

Of these, investment demand emerges as the most dynamic and influential player in the gold price saga. With a roller-coaster ride through the years, reflecting global economic and political tides, investment demand held strong – even amidst turmoil.

Following an era of dramatic economic and political turmoil, investors jumped on the gold bandwagon, resulting in an unprecedented annual net investment buying spree of 40 million ounces in 2020, catapulting gold prices to unprecedented heights.

Despite a turbo-charged recovery in 2021, bolstered by widespread vaccinations and economic revival, investors continued to maintain their stronghold on the precious metal, purchasing 24-27 million ounces of gold bullion annually. This level of demand proved sufficient to uphold prices above US$1,625 per ounce. However, it fell short of the 40 million ounces that fueled the remarkable 37% surge in annual gold prices in 2020. But it also surpassed the 16-17 million ounces annually that previously kept prices below US$1,350 per ounce in 2018 and the first half of 2019.

Looking ahead, the crystal ball shows a promising future, with net investment demand projected to surpass 30 million ounces next year, possibly approaching a staggering 40 million ounces in 2025. These robust levels of demand are anticipated to be fueled by a confluence of corrosive political and economic developments, painting a portrait of a market upheaval.

Alongside investors’ burgeoning appetite for gold, central bank buying is set to play a pivotal role. Although central banks have generally acquired around 10 million ounces per year since 2009, recent trends indicate a potential rise to approximately 13 million ounces in the current year. These institutions are expected to remain significant buyers of gold for over a decade, albeit with a slight slowdown in the next two years, should market conditions remain stable.

Notably, central banks exhibit sensitivity to price variations, making strategic decisions based on market forces rather than impulsive buying behavior. Their cautious approach has been evident in the past, with instances such as the People’s Bank of China adjusting its gold acquisition patterns in response to price fluctuations.

Myths Vs. Realities

While central banks diligently reinforce their gold reserves, the financial world has been rife with peculiar comments and theories about their intentions. Some enthusiasts have propagated notions of a gold-based trading currency initiated by the emerging BRICS group (Brazil, Russia, India, China, and South Africa) and a reversion to a gold standard. However, these ideas remain firmly in the realm of fantasy, with no support from the respective governments and central banks.

Contrary to romanticized notions of a stable economic past, central bankers and mainstream economists remain steadfast in their knowledge that past gold standards have led to economic calamities such as inflation and depressions. These stark realities have failed to deter believers in mythical gold standards, underscoring the defiance of human faith in the face of irrefutable evidence.

Meanwhile, central banks strive to diversify their monetary reserves, with 60% of their foreign exchange holdings in U.S. dollars. However, the gold market’s relatively petite size and limited liquidity dampen their enthusiasm for the metal.

Ultimately, stock demand – driven by investors and central banks – emerges as the primary locomotive of gold prices. While fabrication demand and mine production hold significance, they pale in comparison to the dynamic nature of stock demand.

Looking further ahead, expectations point towards stable mine production in 2024 before resuming its decline in the subsequent years. Secondary supply is projected to surge in the coming years, propelled by the lure of record prices. Fabrication demand, dominated by jewelry and decorative objects, is foreseen to reach new heights, signaling a thriving industry in the face of unprecedented prices.

Wrapping it all up, the outlook for gold prices seems enigmatic, propelled by a torrent of political, economic, financial, and social challenges. The resulting investor and central bank demand is poised to drive prices to new records over the next two years, or until a brighter dawn arrives. In the meantime, fasten your seatbelts.

Jeffrey M. Christian is the managing partner with CPM Group.

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