The Momentum of Central Banks' Gold Purchases Expected to Persist in 2024
The initial half of 2023 witnessed a historic surge in central bank gold purchases, primarily led by China and Russia. Notably, the World Gold Council reported a remarkable increase compared to the preceding year, stating, "On a year-to-date basis, central banks have bought an astonishing net 800t, 14% higher than the same period last year."
Despite uncertainties surrounding the potential impact of the January Effect on gold prices in 2024, numerous indicators suggest that the central bank buying spree will persist, at least throughout the first half of the new year. One significant factor contributing to this trend is the ongoing process of de-dollarization, with powerhouse economies like China and Russia strategically distancing themselves from USD hegemony.
The Biden administration's imposition of sanctions on Russia amid the Ukraine conflict further motivates Russians to divest from the US dollar. Coupled with a volatile ruble and increased American spending on proxy wars in Ukraine and Israel, it is foreseeable that Russia's gold reserves will continue expanding.
It is worth noting that China and Russia might be acquiring more gold than publicly disclosed, with the real figures potentially exceeding reported numbers. This aligns with observations by experts like Jim Richards, emphasizing that countries such as Russia and China hold gold through off-the-books programs beyond official declarations.
For additional fuel to central bank gold-buying dynamics, the Federal Reserve, despite claiming victory against inflation, is expected to lower rates in 2024. This shift prompts central banks to seek ways to hedge against the repercussions of easier monetary policies. While the Fed's balance sheet decreased in 2023, it did not offset the trillions added during the Covid era. Lower rates in 2024 could exacerbate inflation, leading to a weakened dollar and increased relative prices for gold and commodities.
The year 2024 introduces heightened uncertainty, marked by ongoing proxy conflicts involving the US and a presidential election amplifying global perceptions of domestic political instability. Anti-establishment sentiments expressed by candidates like RFK Jr. and Vivek Ramaswamy add to the turbulence, suggesting a departure from traditional norms. Potential government shutdowns, fiscal policy debates, and political stand-offs ahead of the 2024 US election cycle contribute to an unpredictable landscape.
While some economists and Fed officials anticipate a "soft landing" in the coming year, signs of instability, inflation, negative-yielding debt, and election-year complexities point to a persistent demand for safety throughout 2024. Beyond public statements, central banks recognize the imperative to continue accumulating gold strategically, viewing it as a crucial maneuver to safeguard against the complexities of economic meddling, stretched foreign engagements, and political turmoil in the US.