So far this year, gold prices have surged by over 15%, mainly driven by safe haven demand triggered by the Russia Ukraine conflict and the Middle East conflict, as well as buying by central banks around the world.

For most of the second quarter, gold prices traded at more than $2300 per ounce and rose for the third consecutive quarter, the best performance since the COVID-19 epidemic.

In the first half of this year, although the Federal Reserve kept interest rates at a high level, the US dollar strengthened, the yield of US 10-year treasury bond bonds, ETF holdings and gold prices diverged, gold prices continued to hit new highs.

Dutch International Group believes that in the current global geopolitical and macroeconomic situation, gold is expected to maintain a positive momentum in the second half of the year, and demand from central banks is expected to increase.

Hopes of US interest rate cuts have boosted gold prices

As more and more economic data supports the Federal Reserve's shift towards the economy, the market's optimistic sentiment towards a US interest rate cut also supports the outlook for gold this year. Lower borrowing costs typically support interest free gold.

Since July last year, the Federal Reserve has maintained key policy interest rates in the target range of 5.25% to 5.5%, the highest level in over 20 years. However, last week's poor economic data strengthened the prospect of the Federal Reserve shifting towards loose monetary policy as early as September. According to data from the Bureau of Labor Statistics, recruitment and wage growth in the United States slowed down in June, while the unemployment rate slightly increased. Swap traders currently estimate a 75% chance of a rate cut in two months.

According to American economists at Dutch International Group, September is the first time the Federal Reserve has lowered interest rates, with three expected cuts this year. Currently, the market expects two cuts, with the federal funds rate expected to drop by 4% by next summer.

Central banks around the world continue to purchase gold

The central bank continued to buy gold in May, with a net purchase of 10 tons that month, but demand slowed down that month. According to the data of the World Gold Council (WGC), the gold purchase in May was dominated by the central bank of emerging markets. The Polish central bank was the largest gold buyer, followed by the central bank of Türkiye and the Reserve Bank of India.

However, in recent months, China's gold purchases have slowed down. The People's Bank of China did not increase its gold reserves for the second consecutive month in June. In May of this year, the People's Bank of China did not increase its gold reserves, ending the 18 month buying frenzy that pushed gold prices to record highs. At present, high gold prices may have prevented further purchases of gold. As of the end of last month, the central bank of China's holdings of gold remained unchanged at 72.8 million troy ounces.

Meanwhile, the Reserve Bank of India added over 9 tons of gold in June, the highest level since July 2022. India's gold reserves have increased by 37 tons this year, reaching 841 tons.

In the current economic environment and geopolitical tensions, we still expect central bank demand to remain strong.

A recent survey by the World Gold Council shows that central bank purchases will remain strong, with 29% of central bank respondents planning to increase their gold reserves in the next 12 months, the highest level since the World Gold Council began its gold reserve survey in 2018.

In 2023, central banks around the world added 1037 tons of gold, the second highest annual purchase volume in history, second only to the record breaking 1082 tons in 2022.

Gold ETF turned positive in May

In May one year later, global gold ETF inflows turned positive, with Europe and Asia leading the global inflows, while North America turned negative.

When gold prices rise, investors usually hold more gold ETFs, and vice versa. However, for most of 2024, the holdings of gold ETFs have been declining, while spot gold prices have reached new highs. In May of this year, the inflow of ETF funds finally turned positive.

At the same time, the net long position on the New York Mercantile Exchange increased month on month in May, enhancing the market's positive sentiment towards gold.

Dutch International Group expects gold prices to rise to $2300 per ounce in the third quarter, $2350 per ounce in the fourth quarter, with an average gold price of $2255 in 2024, $2350 per ounce in the first quarter of 2025, and $2300 per ounce in 2025.