(Kitco News) – Central bank buyers may not be as affected by higher gold prices, according to Aakash Doshi, NAM Head of Commodities Research at Citi.
On Tuesday, Doshi shared his insights with Kitco Mining.
Shift in Demand Dynamics
Jewelry fabrication typically accounts for roughly 50% of the gold market, with the remaining demand stemming from investment, central banks, and industrial applications.
Over the last decade or so, there has been a shift in the demand dynamics. Doshi noted, “[That] started to shift over the last 10 to 15 years. It really started with the Great Financial Crisis. So, for four decades prior to the GFC and following the Nixon shock, central banks were net sellers of gold. They provided net supply to the market. After the GFC period, you saw central banks emerge as net buyers.”
According to Doshi, central banks have been increasing their gold purchases, now consuming over 1,000 tons per annum, representing up to 28% of annual mine production.
Central Banks as Strategic Buyers
Traditionally, higher metal prices have led jewelers to reduce their demand for gold. However, Doshi believes central banks may not be as sensitive to price fluctuations as they are more strategic in their buying approach. He mentioned that central banks could be among the least price-sensitive buyers in the market.
Rising Gold Price Predictions
In a recent research note, Doshi forecasted that gold could potentially hit $3,000 per ounce by 2025. He attributes this optimistic outlook to strong investor demand, especially for physical gold, along with heightened purchases by central banks, particularly in emerging markets.
Despite a 20% surge in gold prices since February, Doshi points out that this increase hasn’t been primarily driven by the usual factors like a weaker dollar or lower interest rates. He believes the bullish sentiment for gold is a result of strong physical demand combined with the anticipation of financial macro factors catching up. Central bank acquisitions have not only established a higher price floor for gold but also helped stabilize its volatility.
Support for Sustained Higher Prices
Doshi also highlights the growing demand for alternative fiat currencies, which has been fueled by the mounting global debt levels post-pandemic. He suggests that gold’s historical price ceiling of $1,000 an ounce may have transformed into a support base ranging between $1,900 and $2,000, signaling a possibility for sustained higher prices in the future.
Despite the potential for a more restrictive monetary policy stance, Doshi remains optimistic about the risk-reward ratio favoring higher gold prices, especially in the event of a potential U.S. recession, which could propel gold towards the $3,000 milestone within the next six to twelve months.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities, or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/or damages arising from the use of this publication.
Insight: By emphasizing the strategic aspect of central bank gold buying and highlighting the shift in demand dynamics over the years, it becomes evident that gold’s value is not solely dependent on market fluctuations but also on the strategic decisions made by key players like central banks.
