Analysts predict that the global industrial cycle will deteriorate by the end of 2024 or the beginning of 2025, which will support long-term rise in gold prices.
The gold price is still trapped below $2350 per ounce and is ranging in a narrow range. However, a research company predicts that this summer's calm is just the calm before the storm.
In a recent commentary, Roukaya Ibrahim, a commodity analyst at BCA Research, reiterated their long-term bullish outlook on precious metals. The research institution has been bullish on gold since November 2022.
In the short term, there is still room for the gold price to go down as the bullish momentum weakens. But Ibrahim says she sees limited downside potential.
"The increasing demand for gold from emerging market central banks is a structural phenomenon. It will continue to be a source of support for the gold price, setting a bottom for it," Ibrahim wrote.
Although the market is seeing demand for diversification from central banks around the world, BCA continues to focus on China. Although China did not buy any gold in May, Ibrahim said the country's central bank will continue to add to its gold reserves.
"The slowdown in China's central bank's purchase of gold indicates that its demand is sensitive to high prices. However, the increase in the country's central bank's demand for gold represents a structural and long-term shift in its demand," Ibrahim wrote.
The motivation behind China's central bank's increasing demand for gold still exists, and China will continue to seek to reduce risks stemming from the global system.
China's central bank remains the dominant force in the gold market. After 18 months of gold-buying frenzy, China's central bank bought 316 tons of gold, raising the proportion of its gold holdings in total foreign exchange reserves to 4.9%.
Ibrahim estimates that if China's central bank wants to increase its gold reserves to 16% of total assets, it will need to buy an additional 5700 tons of gold. "This is more than the global demand for gold in 2023 of 4400 tons," she said.
If China's central bank wants to spread its gold purchases over the next five years, that demand will account for about a quarter of global gold demand.
Meanwhile, Ibrahim also expects the impending shift in US Federal Reserve monetary policy to create new momentum for gold in the second half of the year.
"Currently, the 10-year TIPS yield is close to the level it was when the loose cycle began in 2007. At that time, gold rose in the three years after the Fed's first rate cut. So, considering the upcoming shift in monetary policy stance, expecting gold to get some support is not unreasonable," she said.
Finally, Ibrahim said she expects a slowdown in economic growth to be another factor supporting gold's long-term rise.
"We expect a high probability of a US economic downturn in the next 12 months. Commodity portfolios and global multi-asset portfolios should increase exposure to precious metals (especially gold) in the short term. We expect the overall economic situation, particularly the global industrial cycle, to deteriorate by late 2024 or early 2025."