Gold ready to test new highs

Data from the World Gold Council shows that physical gold ETFs saw a monthly inflow of $1.4 billion in June. Year-to-date, these ETFs have lost $6.7 billion as investors pulled money out of gold ETFs earlier this year.

Data show speculative investors began buying gold ETFs at a time when China’s more conservative central bank halted its purchases due to high prices.

The key question is whether China’s central bank will start buying gold again in the coming months. The central bank missed the opportunity to buy gold near the $2,300 level, so it may be forced to buy more gold at higher prices to diversify its reserves amid growing tensions in Sino-U.S. relations.

A recent survey of central banks published by the World Gold Council shows that the percentage of central banks that believe the dollar’s share of total reserves will be “significantly lower” in five years has increased from 5% in 2023 to 13% in 2024.

As many as 66% of respondents believe that the share of gold in total reserves would be “moderately higher” within five years.

It is very likely that speculative investors will want to take advantage of this long-term trend, so flows into gold ETFs will continue to grow. At the same time, the upcoming start of the Fed’s rate-cutting cycle should provide additional support to gold markets and push gold above the $2,500 level.