China’s first gold purchases since 2019 keep bullion bulls upbeat as Citic sees chance of record-breaking run in 2023
- Citic Securities sees a good chance of gold prices reaching new heights in 2023 as central bank purchases brighten outlook
- Gold could also halt two years of losses on haven demand as recession, geopolitical risks remain
Futures on the yellow metal fetched US$1,937.36 an ounce in New York on Tuesday, bringing this year’s advance to 6.2 per cent, according to Bloomberg data. Gold fell 0.1 per cent in 2021 and 3.5 per cent in 2020, and has retreated 6.1 per cent since reaching an all-time high of US$2,063.54 in August 2020.
Global central banks bought almost 400 tons of gold in the third quarter last year, the biggest quarterly addition on record, according to data published by the World Gold Council in January. The People’s Bank of China (PBOC) was among the buyers, it said, while Russia was rumoured to have also loaded up.
“Purchases by global central banks are one of the most reliable indicators signalling gains in bullion prices,” said Ao Chong, an analyst at Citic Securities in Beijing. “Gold prices are expected to retain momentum and will be underpinned by easing expectations about the Fed’s interest-rate increases, the continuation of geopolitical conflicts and economic recession.”
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The PBOC bought 30 tons of gold in December to diversify its foreign reserves, after adding 32 tons in November in its first purchases since September 2019. The two rounds of buying lifted its holding to 2,010 tons, valued at about US$120 billion at current market prices, or 3.6 per cent of its US$3.3 trillion reserves.
Gold’s upwards trajectory could push prices in 2023 beyond the August 2020 record, Citic Securities said in its report dated January 9, without providing a specific target.
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The metal’s upside could be aided by demand for haven assets because of geopolitical risks and concerns about a global recession. Bets on slower US rate increases in 2023 have sapped some of the US dollar strength, the brokerage added. The US currency has lost 1.2 per cent of its value against major peers this year, according to Bloomberg data.
“We remain bullish on gold as a play on dollar weakness and lower real yields,” said Montreal-based research firm Alpine Macro in a report on January 16. “Gold is well-positioned to benefit given its historical inverse correlation with the dollar and real yields.”
Sentiment is improving. Hedge funds raised their net long positions on gold to 72,805 lots in the week to January 3, the highest level in seven months, according to the Commodity Futures Trading Commission. Their holdings have reversed from a net-short level of 41,300 lots at the end of September.
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“Investors should favour gold over other precious metals, as it has little to fear [from weakening industrial activity],” said Stephen Innes, a managing partner at SPI Asset Management in Bangkok. “The US dollar is likely to decline through 2023.”
The bullion’s early strength has also helped drive gains in Chinese gold miners listed on the Hong Kong stock exchange. Shares of Zijin Mining, Zhongjin Gold and Zhaojin Mining Industry have risen by 3 per cent to 13 per cent this year to multi-month highs.
One potential catalyst for gold prices is the Lunar New Year or the Spring Festival from January 21 to 27. Chinese consumers traditionally snap up gold jewellery as blessing and auspicious gifts, and pent-up demand since the pandemic could give some tonic to gold prices this time.
For Edward Moya, an analyst at Oanda, the prospect of a recession coupled with weaker corporate earnings is boosting the appeal of the precious metal.
“Gold prices are rising as Wall Street grows confident that the Fed is almost done with raising rates,” he said. “Non-interest bearing gold is loving the slide in bond yields and that could continue as earnings come in softer than expected.”
