Precious Analyst_ Nowcasting 'Secret' Gold Buyers; Raising our Gold Price Forecast

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the gold market, specifically the dynamics of gold prices and central bank demand, particularly from emerging markets (EM) [2][9][11]. Core Insights and Arguments 1. Gold Price Forecast Increase: The gold price forecast has been raised from $2,700/toz to $2,900/toz for early 2025 due to anticipated faster declines in short-term interest rates in the West and China, and the gradual pricing in of these rates into Western ETF holdings backed by physical gold [2][9]. 2. Central Bank Purchases: EM central bank purchases in the London over-the-counter (OTC) market are driving the gold price rally, with purchases averaging 730 tons annualized year-to-date, representing about 15% of global annual production estimates [3][13]. 3. Long Gold Recommendation: The recommendation to hold gold is reiterated based on three factors: lower global interest rates, structurally higher central bank demand, and gold's hedging benefits against geopolitical and financial risks [3][25]. 4. Impact of Central Bank Demand: Central bank purchases are expected to account for about two-thirds of the anticipated rise in gold prices to $2,900/toz, with ETF flows following Fed rate cuts contributing the remaining one-third [10][25]. 5. China's Central Bank Activity: The People's Bank of China (PBoC) has been a significant player, reportedly purchasing gold for 18 consecutive months since November 2022, with estimates suggesting higher purchases than reported [15][16]. Additional Important Insights 1. Nowcasting Model: The nowcasting model used for estimating central bank demand is based on customs data and provides timely, country-level insights, contrasting with the quarterly estimates from the World Gold Council (WGC) [5][14]. 2. Gold Bar Exports: UK gold exports to the world, excluding Switzerland, have surged since mid-2022, indicating increased accumulation by EM central banks due to concerns over US sanctions and debt sustainability [21][24]. 3. Discrepancies in Reporting: There are discrepancies in gold trade data between the UK and Switzerland, suggesting that central bank gold may be in transit or stored in Switzerland, which is not fully captured in Swiss customs data [24][25]. 4. Potential Risks: Factors that could moderate the expected upside in gold prices include a softening in central bank demand, lower-than-expected ETF inflows, or a pullback in China's retail demand due to price sensitivity [26][25]. Conclusion - The gold market is experiencing significant upward pressure from central bank purchases, particularly from emerging markets, and the forecast for gold prices has been adjusted upward. The dynamics of interest rates and geopolitical risks continue to play a crucial role in shaping the outlook for gold as an investment.