The gold market is set to end a record-breaking year on a positive note, with the precious metal boosted by a confluence of factors, including escalating geopolitical tensions and rising national debt. The bullion has been the best-performing commodity of 2024, outperforming base metals and equities while also regaining investor interest following a sharp sell-off in November.
Investors are seeking safe-haven assets amid global economic uncertainties. Escalating geopolitical tensions are also boosting gold demand, particularly from central banks, which have been increasing their purchases to diversify their reserves. The latest quarterly figures show that central bank net demand climbed to its highest over a decade.
In the third quarter, global central banks added 229 tonnes of gold to their official reserves. This increased annual demand since 2010 as countries shifted allocations away from dollar-based assets. Some of the world’s largest economies, including China and Russia, have been among the most active buyers.
This shift in allocations is linked to rising fears about global inflation and the impact of quantitative easing (QE) on central bank balance sheets. QE is a policy tool that involves buying government bonds in the open market, creating new money, and adding it to bank reserves. This increases the money supply and lowers interest rates, but it can also devalue currencies.
Some central banks are adding more gold to their reserves in a bid to limit the impact of QE on their currencies. This has led to higher demand for the metal and a rally in prices. However, the metal remains under pressure from a stronger dollar and potential rate cuts by the Federal Reserve.
With Donald Trump’s election, investors are preparing for his administration to implement a number of policies that could impact global financial markets. This has prompted some high-net-worth investors to buy the metal.
Another factor driving gold is the ongoing geopolitical uncertainty in the Middle East and Ukraine. The heightened tensions are raising concerns about a possible military response from the United States, which is positive for gold.
In addition to the geopolitical factors, retail demand for gold is a significant driver. In the West, jewelry is typically purchased for its aesthetic appeal, but in countries like India and China, it is prized as a store of wealth and used to protect savings from economic shocks. This can account for up to a quarter of global demand for the metal. The upcoming festive season is expected to boost jewelry demand. This will be a key driver for gold in the coming months. However, the market will remain vigilant to any potential geopolitical tensions and the possibility of further Fed rate cuts. These will weigh on the broader commodities market. Consequently, the price of gold is likely to stay volatile. However, the metal can make solid gains in the long run.