Wealthy families and individuals concerned about US government debt levels are likely driving the record demand for gold in the second quarter, according to an industry report. This surge in demand has pushed gold prices to all-time highs this year.
Private purchases of gold, often kept opaque, surged to 329 tonnes in the three months leading up to June, nearly five times higher than the previous quarter. This data comes from a report by the World Gold Council (WGC), an industry promotion group.
This significant increase in private purchases contributed to the total demand for gold reaching 1,258 tonnes in the quarter, marking the highest April to June period since records began in 2000, and a 4% increase compared to the same period last year.
Earlier this month, the price of gold reached a record high of $2,483.60 per troy ounce. This spike was driven by growing expectations of interest rate cuts, which benefit non-yielding assets like gold by reducing the returns on bonds, and uncertainty surrounding the US presidential election. Currently, gold is trading around $2,380 per troy ounce.
John Reade, chief market strategist at the WGC, indicated that anecdotal evidence points to wealthy US family offices as significant buyers of gold due to concerns about uncontrolled fiscal deficits. “I couldn’t explain why gold was high. I was looking for the missing buyer, who might be people buying because of renewed or accelerating fears over US debt,” Reade said.
Investors are increasingly jittery about rising US federal debt levels, especially if Republican presidential candidate Donald Trump wins in November. The Congressional Budget Office, an independent fiscal watchdog, projects US debt will surpass its WWII high of 106% of GDP by 2029, with its director noting earlier this year that the fiscal burden is on an “unprecedented” trajectory.
Over-the-counter purchases of gold have become a significant factor in the market. These transactions are challenging to track as commercial banks arrange deals with buyers privately. Such purchases often reflect buying to hedge speculative positions in the futures market, as well as demand from wealthy individuals.
Reade also noted strong activity in Singapore and Hong Kong from wealthy Asians, along with rich Turks turning to gold as the lira devalued dramatically.
The buying spree by wealthy individuals and families is paralleled by a positive trend in flows into gold-backed exchange-traded funds (ETFs) in recent weeks. June and July saw five consecutive weeks of inflows totaling 39 tonnes, following two years of consistent selling. This indicates that western investors are starting to join the rally.
Central bank net purchases, which have helped push up the gold price by a third since early 2022, hit 483 tonnes in the first half of the year. This marks a record level for the first half of a year. However, these purchases saw a 39% drop between the first and second quarters, suggesting that central bank buying may not exceed 1,000 tonnes this year, a level reached in the previous two years.
Chinese consumers and investors, who drove gold’s surge in the first half of the year, have begun to slow their buying following the People’s Bank of China pausing its purchases in May.
Additionally, purchases of gold jewelry have been affected by higher prices, falling 19% to 390 tonnes in the second quarter compared to a year ago.
The rising demand for gold, driven by wealthy investors and concerns over fiscal deficits, continues to shape the market, keeping the precious metal in high demand despite various economic uncertainties.
