Gold prices decline despite positive central bank demand forecast

Gold (XAU/USD) price has fallen over a quarter of a percent on Tuesday as the market shifts towards riskier assets over safe-havens. A World Gold Council survey indicates that central bank demand is expected to remain strong in 2024, adding a backwind to the gold price. The decline comes as a positive risk tone dominates the market, with demand for riskier assets diverting attention away from the safe-haven precious metal.

US stock indexes reached new all-time highs on Monday, and most bourses in the East also recorded gains. Current market expectations see the US Federal Reserve making a 0.25% cut to the Fed Funds Rate by September, which is roughly 55% probable. Central banks are purported to now account for about a quarter of total Gold purchases, and demand from the sector is likely to remain strong in 2024.

The WGC’s “2024 Central Banks Gold Reserves Survey” results showed that 81% of respondents expected overall central-bank Gold reserves to increase in 2024, 19% for them to remain the same, and none to fall. This was higher than the 2023 survey results, which showed 71% expected overall central bank reserves to increase, against 28% that they would remain unchanged, and 1% that they would fall.

The most important driver for central banks to hoard Gold is as a “long-term store of value/inflation hedge,” with 42% rating it as a “highly relevant factor” in their decision-making process. The survey findings suggest longer-term demand for Gold from central banks is likely to remain robust, a supportive factor for the gold price.