Source: Wind

During a campaign rally in Pennsylvania, USA on the afternoon of the 13th local time, gunshots were heard at the scene. The incident occurred when global markets were closed.

However, the more uncertain the world is, the more certain gold will benefit.

According to Bank of America, the price of gold could rebound to $3,000 in the next 12-18 months.

Citibank's report suggests that the trend of gold consumption growth will improve in 2024, which may push spot trading to a record of $2,400-$2,600 per ounce in the second half of 2024. The target price for gold by mid-2025 under this baseline is $2,800-$3,000 per ounce.

Watch out for turbulence in the US bond market.

So far, the US federal government's expenditure is $855 billion more than in fiscal year 2024. In fiscal year 2023, the government's deficit expenditure is $1.7 trillion.

In other words, the current US debt total exceeds $32 trillion!

Within a short three years, the US debt-to-GDP ratio is likely to exceed the post-World War II record of 106%. Currently, only three developed economies, Japan, Italy, and Greece, have worse debt-to-GDP ratios than the US. In addition, US debt interest payments this year are nearly $900 billion, the fastest-growing item in the budget and exceeding defense costs.

This is good news for purchasing, because the US Treasury is putting a large number of bonds into the market, and market demand will not increase in turn. Turbulence in the bond market is inevitable, and the safe-haven value of gold will be highlighted.

In addition, Marko Papic, chief strategist at BCA Research Inc., said, "I do believe that the bond market will understand that the probability of Trump winning the White House is higher than that of any competitor, and I still think that as his chances of winning increase, the likelihood of turbulence in the bond market will increase as well."

Generally speaking, when there is a major fluctuation in the sovereign bond market, the price of gold will be boosted. If the US bond market is turbulent, there is a high probability that gold will become a yield asset.

Gold production is declining.

According to the World Gold Council, as gold deposits become increasingly difficult to find, the gold mining industry is working hard to maintain production growth.

John Reade, chief market strategist at the World Gold Council, said, "Gold mine production in the first quarter of 2024 increased by 4% year on year, reaching a historical high. However, from a broader perspective, gold mine production has actually stabilized around 2016 and 2018, and no growth has been seen since then."

According to the International Trade Association, gold production will only increase by a slight 0.5% compared to a year ago in 2023. In 2022, gold production increased by 1.35% year on year, and in 2021 it was 2.7%. In 2020, global gold production fell for the first time in 10 years, by 1%.

John Reade further explained that as many promising areas have been explored, it is becoming increasingly difficult to find new gold deposits around the world.

The World Gold Council stated that large-scale gold mining is capital-intensive, requiring a lot of exploration and development, and it usually takes 10 to 20 years for a mine to be ready for gold production.

Even during exploration, the possibility of discovering a mine and developing it is very low, and only about 10% of gold mines worldwide contain enough metal to be worth exploiting. So far, about 187,000 tons of gold have been mined, most of which come from China, South Africa, and Australia. The US Geological Survey estimates that there are about 0.057 million tons of gold reserves that can be mined.

Apart from the discovery process, government permits are becoming increasingly difficult to obtain and take more time, making mining more difficult. It may take several years to obtain the necessary licenses and permits before mining companies can begin operations.

Central banks are continuing to increase their holdings.

The increasingly complex geopolitical and financial environment makes gold reserves management more important than ever. In 2023, central banks around the world increased their gold holdings by 1,037 tonnes, the second-highest annual purchase volume in history, after reaching a record high of 1,082 tonnes in 2022.

According to the World Gold Council's 2024 Central Bank Gold Reserves (CBGR) survey, 29% of central bank respondents plan to increase their gold reserves in the next 12 months, the highest level observed since the survey began in 2018.

Emerging market central banks have been particularly active in increasing their gold holdings. According to data from the Reserve Bank of India, more than 9 tonnes of gold were added in June, the highest level since July 2022, meaning that India's gold reserves increased by 37 tonnes this year, reaching 841 tonnes.

"Gold is in a big upward cycle."

In a recent report, Huaxi Securities stated that in the first half of 2024, geopolitical conflicts in Russia and Ukraine and the Middle East were frequent, with strong U.S. inflation and employment data, and repeated expectations of lower interest rates from the Federal Reserve causing prices of major asset classes to "rebound". Precious metals had good performances in the first half of the year among global asset classes.

The institution stated that real interest rates or exchange rates are the opportunity cost of gold, and the negative correlation between real interest rates and gold prices reflects the financial properties that drive gold. During the US interest rate hike cycle, the financial properties of gold dominated. Since 2007, the trend between US Treasury real interest rates and gold prices has shown a significant negative correlation. However, since the second half of 2022, gold prices have fluctuated in the same direction as real interest rates several times, indicating that the financial properties of gold have weakened somewhat.

Huaxi Securities also stated that buying on dips is a characteristic of central bank gold purchases, and once gold prices fall, central banks are expected to drive gold purchases again. From historical data, the amount of gold purchased by central banks and the price of gold have shown a negative correlation, and buying on dips is a characteristic of China's central bank gold purchases.

Sinolink Securities stated that US June CPI rose 3% YoY, below expectations of 3.1% and the previous value of 3.3%, with a 0.1% MoM decline. The progress of CPI significantly increased the market's expectation of a rate cut in September. The conflict between Israel and Lebanon and the geopolitical volatility, combined with weak US economic data, boosted expectations of a recession and pushed up gold prices. It is believed that the probability of a deep correction in gold prices this year is small as long as there is no expectation of an interest rate hike.

Editor / jayden