Gold Market Soars: Inflation and Central Bank Purchases Drive Prices Higher

Gold Market Outlook: Inflation Expectations and Central Bank Activity Drive Bullish Forecast

Bullish Momentum Fueled by Inflation Expectations and Central Bank Purchasing

Gold prices remain at the center of attention for investors, buoyed by inflationary concerns and sustained central bank purchasing. As of Thursday, gold prices in the Philippines stayed stable at PHP 4,521.92 per gram and PHP 52,743.16 per tola. With inflation expectations rising and central banks actively increasing their gold reserves, the fundamentals for gold point to continued strength into 2025 and beyond.

Rising Inflation Expectations Drive Gold Prices

Gold’s recent upward momentum is largely driven by the rise in inflation expectations, which has historically shown a strong correlation with the metal’s price movements. Contrary to the common belief that gold only performs well in recessionary environments, the real driver is inflation. As inflation expectations rise, gold’s appeal as a hedge against devaluation strengthens.

The data reinforces this relationship. For example, the TIP ETF, which tracks inflation-protected securities, has shown a positive correlation with gold prices over the last two decades. The steady increase in inflationary pressures suggests that gold will continue its upward trajectory in the coming years.

Central Bank Purchases Reach New Highs

A second significant factor bolstering gold prices is the ongoing central bank accumulation of gold. July 2024 saw net gold purchases by central banks more than double to 37 tons, marking a 206% increase month over month. This strong demand, led by various global central banks, underscores the rising importance of gold as a reserve asset.

Since 2019, central bank buying has surged, creating a floor for gold prices. With central banks being less price-sensitive than individual investors, their continued purchasing is a stabilizing force for the market. The recent trend suggests that central banks will maintain their gold accumulation strategy, reinforcing the bullish outlook for gold prices in the medium to long term.

Gold’s Technical Picture: Support Levels Hold Firm

Technically, gold remains strong, with key support levels around the $2,500 mark. Recent sessions have shown upward pressure, driven by a combination of a weakening U.S. dollar and lower Treasury yields. If gold prices can break above $2,525, further gains could be seen, pushing the market higher.

Moreover, the gold market has formed a series of bullish hammer patterns on the daily chart, indicating strong buying interest on dips. The $2,500 level is expected to remain a significant support area, providing a potential buying opportunity for investors looking to enter the market.

Harmony Gold Reports Lower Dividend and Conservative Outlook

Shares of Harmony Gold Mining (HAR) fell 7.8% to 152.86 South African rand on Thursday following the announcement of a lower-than-expected dividend. Despite reporting a 67% rise in net profit to $459 million for fiscal 2024, the miner’s conservative guidance for fiscal 2025 weighed on investor sentiment.

Harmony expects to produce between 1.4 and 1.5 million ounces of gold in the current fiscal year, a slight decline from the 1.56 million ounces achieved in 2024. The company’s all-in sustaining costs are projected to rise, ranging between 1.02 million and 1.10 million rand per kilogram of gold, reflecting higher mining costs.

Gold’s Strong Demand Outlook Through 2025

As inflation expectations continue to rise and central bank purchases remain strong, the outlook for gold remains bullish. The yellow metal has benefitted from historically high prices, reaching $2,500 per ounce and showing no signs of slowing down.

With global economic uncertainties persisting and expectations for rate cuts from the U.S. Federal Reserve growing, gold is well-positioned to benefit from the shifting macroeconomic environment. Investors looking for a safe-haven asset amid these uncertainties should consider gold as a valuable component of their portfolios.

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