Is the foundation of the gold bull market still strong? WGC's latest survey: 45% of central banks plan to increase holdings, record enthusiasm for gold purchases!

During a period of intense fluctuations in the price of gold, the latest survey released by the World Gold Council (WGC) shows that the willingness of global central banks to increase their gold holdings has risen to historic highs, providing solid support for a long-term bullish market for gold. However, in the short term, factors such as the fluctuating situation between the US and Iran, speculation about interest rate hikes by the Federal Reserve, and funds flowing out of risky assets are causing gold prices to enter a high volatility phase. 45% of central banks plan to increase holdings, with emerging markets leading the buying trend According to a survey conducted by WGC and YouGov, among the 74 central banks surveyed, a significant 45% of institutions plan to increase their gold reserves in the coming year, the highest proportion since the survey began in 2018, with only one central bank indicating an intention to reduce holdings. Over the past three years, gold prices have more than doubled, and the accelerated purchases by central banks are one of the key drivers behind this. Although countries like Turkey, Russia, and Azerbaijan have started selling gold, the overall pace of purchases in the first quarter of this year has been increasing. The survey shows that the majority of increases come from emerging markets and developing economies, with around 53% of these central banks planning to expand their gold reserves in the next year, compared to only 18% of central banks from developed economies. It is worth noting that about half of the central banks planning to purchase gold will use a "domestic purchase" model, where they buy gold from local miners using their own currency rather than using scarce foreign exchange reserves. Additionally, 38% of respondents plan to sell existing reserve assets to fund their purchases. Shaokai Fan, Head of Central Bank Affairs at WGC, stated that the recent pullback in gold prices has opened a buying opportunity for many central banks, as some have indicated a desire to wait for better prices before buying in 2025. Furthermore, as geopolitical risks escalate, the storage locations for central bank gold reserves are also changing. While the Bank of England remains the most popular gold custodian globally (used by 57% of respondents), 9% of central banks have transferred more gold to domestic storage in the past year, and 10% of institutions are diversifying their storage locations, a significant increase from 5% and 2% in last year's survey. Fan points out that geopolitical risks are undoubtedly a major concern for central banks worldwide, and this trend presents opportunities for emerging hubs like Singapore and Hong Kong, which hope to strengthen their local gold markets. US-Iran agreement intensifies fluctuations, interest rate expectations become a short-term key variable This year, the gold market has been pulled back and forth by geopolitical conflicts and macroeconomic expectations. The initial tensions in Iran pushed up international oil prices, leading to concerns about higher energy costs and inflation, and there were expectations in the market that the Federal Reserve might delay rate cuts or even resume rate hikes, putting pressure on assets like gold that do not pay interest. At the same time, profit-taking effects have become significant. From March to May, there was a net outflow of 55 tons from global gold ETFs, with analysts suggesting that speculative funds that were driving the rise in gold prices since the end of last year were now cashing in on their profits. After realizing profits from gold, some investors turned to previously lagging assets and the IPO frenzy sparked by companies like SpaceX, Anthropic, and OpenAI, rather than gold. Analysts like Tom Price from Panmure Liberum said, "Investors are looking for targets like SpaceX, rather than gold, to continue this investment boom." In addition, as mentioned earlier, central banks in emerging markets have started selling gold to defend their currencies or fill fiscal needs reports indicate that Turkey has sold or used about $20 billion worth of gold, and Russia has engaged in similar selling operations. Under these multiple pressures, international gold prices fell to a six-month low of $4022 per ounce on June 11th, down more than 20% from the peak of nearly $5600 at the beginning of the year. However, after the announcement of the preliminary US-Iran agreement, the market saw a dramatic reversal. Previously concerned about high oil prices forcing the Federal Reserve to maintain a tighter policy, expectations of geopolitical tensions easing directly pushed down oil prices, easing concerns about inflation and rate hikes. On the day the news was announced, gold prices jumped more than 2.6%, rebounding to around $4340, and futures markets implied probabilities of rate hikes dropping from about 70% to 58%. Funds that had exited for hedge reasons returned to gold as the "tightening expectations receded." Investment banks remain cautious in the short term, but remain bullish in the long run In the short term, institutions remain cautious about gold prices. UBS Group has significantly lowered its recent forecasts, believing that stronger-than-expected US employment data and delayed rate cuts by the Federal Reserve could push gold prices to seek support in the $3850 to $4000 range, indicating a potential further decline of $300 to $900 from current prices. The bank had already lowered its year-end target price from $5900 to $5500 in May. However, UBS remains "constructive on the long-term outlook." Their basic assumption is that the Federal Reserve will cut rates by 50 basis points before 2027, and US economic growth will be below trend. At the same time, the continued deteriorating fiscal condition of the US and strong demand from central banks globally will provide support for a rebound in gold prices. Citigroup has set a six-month target price of $5000 per ounce after the US-Iran agreement, and noted that gold has shifted from reacting solely to war news to a repricing stage that is more sensitive to oil prices, interest rates, and the US dollar index.