Behind the repeated record highs of gold prices: central banks and retail investors are buying, with quarterly demand reaching the strongest level since 2016

Against the backdrop of frequent geopolitical crises, the price of gold has been soaring since March, hitting consecutive historical highs. According to the latest report from the World Gold Council, this historic surge is mainly attributed to the continuous purchases by central banks in emerging markets and the growth of retail investor participation, even as Western investors remain cautious.

On April 30th, the World Gold Council released the "Gold Demand Trends Q1 2024" report, which indicated that due to continuous outflows from gold ETFs, gold demand in the first quarter (excluding OTC demand) decreased by 5% to 1,102 tonnes year-on-year. However, including OTC demand, total gold demand in the first quarter increased by 3% to 1,238 tonnes, marking the strongest first quarter since 2016.

With emerging market central banks making significant purchases, the pace of global central bank gold buying in the first quarter did not slow down, with official holdings increasing by a net 290 tonnes. Demand for gold bars and coins remained flat compared to the previous quarter at 312 tonnes, representing a 3% year-on-year increase.

In addition, global gold ETF holdings decreased by 114 tonnes in the first quarter. Outflows were seen in Europe and North America, partially offset by inflows into Asian listed products. U.S. listed funds showed a positive turnaround at the end of this quarter.

Looking ahead, the World Gold Council points out that demand for gold bars and coins is expected to remain strong, especially in China, where first quarter demand this year was the strongest since 2017. Demand for gold bars and coins in India is expected to surpass last year, primarily due to robust economic growth.

Despite central banks' gold purchases nearly reaching a new record and surpassing analysts' initial conservative forecasts, the World Gold Council remains cautious about the future gold market.

The World Gold Council notes that while the long-term trend of central banks' net gold purchases has been established, some central banks may choose to adopt a wait-and-see approach following the recent sharp rise in gold prices.

The slowdown in central banks' gold purchases in March may indicate a cautious attitude towards increasing gold holdings at current price levels.

The World Gold Council also mentions that despite weak gold ETF demand in Europe, once central banks start cutting interest rates, funds withdrawn from gold are likely to flow back in. U.S. investors may need clearer signals of rate cuts before returning in large numbers.

With European central bank rate cuts on the horizon, there is still upside potential in the gold ETF space, as the trend of shifting from gold to positive-yielding bonds may end with rate cuts.

North American gold ETF investors may need to wait longer: the view of an economic soft landing is becoming more popular, indicating that interest rates will remain relatively high. However, the strength of the U.S. economy is somewhat superficial, benefiting from the long-term and variable lag effects of interest rate policies, with the full impact likely to show later this year The World Gold Council pointed out that funds from China continue to steadily flow into the gold market, with a net inflow of 29 tons in the four weeks ending on April 19th. In contrast, Europe saw a net outflow of 36 tons, while the United States maintained a neutral flow.

On the supply side, the World Gold Council expects that gold mine supply will break the highest record since 2018, mainly due to supply expansion and growth in Canada, China, and Ghana. Analysts predict that as long as prices remain high, miners will be motivated to continue strong production plans