Surging Global Gold Prices Are Setting Records Almost Daily

By Nantoo Banerjee

With geopolitical tensions rising in Europe and Asia and central banks across the world buying gold like never before are mainly behind the near continuous rise in gold prices since last year. The surging gold price trend may continue through the coming months unless peace and economic stability soon return to the world. However, such chances look remote as Iran has launched itself in the foreground of the war between Israel and the Hamas militants by throwing missiles at Israel with the later responding with counter missile attacks on chosen Iranian military establishments.

The year-old Hamas-Israel war now threatens to expand to cover Iran and some other parts of West Asia. Similarly, the two-year old Russia-Ukraine war may take a nasty turn with North Korea sending troops to Russia escalating conflict and increasing pressure on Ukraine. Last week, the Pentagon confirmed that around 10,000 North Korean troops have been sent to Russia for training and are presumed to be joining the fight against Ukraine within “the next several weeks.”

The geopolitical situation in the regions is serious. This could probably explain why central banks are heavily buying gold. During the first half of 2024, central banks bought a record 483 tonnes of gold, which was five percent higher than the previous record of 460 tonnes in 2023. Turkey was the largest buyer of gold in the first half of 2024, acquiring 45 tonnes. The Reserve Bank of India (RBI) has been consistently buying gold in 2024, and by September 2024, it had increased its domestic gold holdings by over 100 metric tonnes.

The National Bank of Poland became the joint biggest gold buyer amongst central banks, tying with India. China has been steadily increasing its gold reserves for the past 18 months. The People’s Bank of China, the country’s central bank, has been increasing its gold reserves to diversify its assets, reduce its dependence on foreign currencies, enhance monetary policy flexibility, support growing economy, and increase financial security. Emerging market banks are all buying gold. Central banks are buying gold to diversify their reserve assets away from the dollar and to bolster their reserves. This trend is part of a broader theme of de-dollarization. Incidentally, the silver prices are also rising in tandem.

Thanks to the continuous panic purchase of gold by the Indian rich middle-class, the open market prices of the yellow metal have been constantly surging in the country. In mid-October, last year, the gold prices stood at around Rs. 53,650 per 10 grams for 22 karat gold and Rs 58,530 per 10 grams for 24 karat gold. Within months, on January 31, this year, 24K gold was priced at Rs.63,970 per 10 grams, 22K gold at Rs.58,650 per 10 grams. Silver was priced at Rs.76,500 per kilogram.

At the end of last month, the gold price in Delhi soared to Rs.81,343.0/10 grams. The silver price in the nation’s capital was Rs.103,200.0/Kg. Although the prices may temporarily shrink a little in November, they are bound to pick up again during the forthcoming wedding season. The rich are constantly burying their surplus rupee assets in gold as protection against inflation. Going by India’s estimated per capita income rank of 136th in the world in nominal GDP, reaching an all-time high of $2,089.73 in 2022, the country has acquired the distinction of being the fifth-largest importer of gold in the world, accounting for over nine percent of global imports.

India’s imports of gold in 2023-24 are up 30 percent year-to-date. In August 2024, India reported record gold imports, totalling $10 billion, which was a three-fold increase from the previous month. During this year, India imported more silver in the first four months than it did in all of 2023. In February 2024, India’s silver imports hit a record, and were expected to rise by 66 percent in the year. India’s imports of gold and silver come mainly from five countries with Switzerland being the primary source of gold imports, followed by South Africa, the United Arab Emirates, Guinea and Bolivia.

India’s imports of gold and silver from the UAE have increased 210 percent in 2023-24. Interestingly, India is probably the only country in the world where a majority of the private gold hoarding is with the lower middle-income group. In China, the upper middle-income group has the majority of the country’s gold savings. Almost everywhere else, the high-income group accounts for most of the private gold hoardings. Among the world’s top private gold hoarding nations are: the US (8,133 tonnes), Germany (3,352 t), Italy (2,452 t), France (2,437 t), China (2,264 t), Japan (846 t), India (841 t) and the Netherlands (612 t).

Gold is probably the only commodity, the demand for which rockets with price. Going by the current year’s third quarter (Q3) results, the total gold demand gained a record five percent year on year. This strength was reflected in the gold price, which reached a series of new record highs during the quarter. The value of demand jumped 35 percent y/y to exceed US$100bn for the first time ever. According to the World Gold Council, gold bar and coin investment (269t) was down nine percent y/y, from a relatively strong Q3 ’23.

Much of the decline was specific to two or three key markets, counterbalanced by a very strong quarter in India. Gold jewellery consumption (459t) sank 12 percent y/y despite strong growth in India. Although consumers bought reduced quantities, their spend on gold jewellery increased: the value of demand jumped 13 percent y/y to more than US$36bn. The traditional lust for gold and silver jewellery among India’s lower middle income group families is well known. The normal factors governing global gold prices such as geopolitical tensions, inflationary pressures, central bank buying, bond yields and strength or weakness of US dollar don’t seem to concern India’s vast lower middle-income group. (IPA Service)