Apr 3 2024: Gold prices remained close to record highs on Wednesday, driven by heightened safe haven demand following a severe earthquake in Taiwan. However, BofA Securities believes that it’s physical demand, especially from central banks like China’s PBOC, that will continue to fuel further gains.
At 04:50 ET (09:50 GMT), spot gold traded at $2,271.60 an ounce, staying within reach of the record high of $2,288.43 reached on Tuesday. Gold futures expiring in June traded at $2,292.05 an ounce, slightly below the lifetime highs of $2,308.85 an ounce.
The earthquake in Taiwan had a negative impact on risk appetite, affecting infrastructure and top chipmaking factories and leading to tsunami warnings in parts of Japan.
Despite these events, BofA Securities noted that the significant push in gold prices has been driven by physical demand, notably from central banks like China’s PBOC, which has been increasing its gold exposure. This trend has also attracted purchases from China’s retail market, with record-high jewellery sales and non-monetary gold imports.
However, the positive relationship between gold prices and physically backed ETFs has faltered, with assets under management in these vehicles declining due to liquidations by investment advisors. This shift towards options reflects ongoing apprehension about monetary policy direction, but BofA Securities expects investors to return to the gold market if the Fed starts cutting rates.
BofA Securities maintains a price estimate of $2,400/oz for gold this year, even if rate cuts by the Fed occur later than initially anticipated.
