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Gold Outlook: Global instability spurs surge in yellow metal’s prices; will countries return to gold standard?

Gold has outperformed all other asset classes in the current calendar year so far, not only maintaining its physical allure but also generating substantial returns. At the start of 2024, the price of spot gold was trading at $2,062 per ounce, while it is now valued at $2,391 per ounce, marking a rise of 16%. During mid-April, it even reached a new peak of $2,450 per ounce.

Similarly, domestic gold prices have surged from ₹63,225 per 10 grams to ₹72,958 per 10 grams, touching a record high of ₹74,442 on May 20.

Worsening geopolitical tensions, including wars in the Middle East and Ukraine, along with the prospect of lower U.S. interest rates, have all bolstered gold’s appeal as an investment.

Additionally, relentless demand from China and India, driven by retail shoppers, fund investors, futures traders, and strong buying from global central banks, drove the price of yellow metal to unprecedented heights.

For centuries, gold has been cherished for its rarity and intrinsic value. Unlike fiat currencies, which are vulnerable to inflationary pressures and government interventions, gold has historically demonstrated resilience by maintaining or even appreciating its worth over extended periods. This enduring stability makes gold a sought-after asset among investors seeking refuge during times of economic volatility and geopolitical uncertainty, circumstances that are particularly prevalent in the current global climate.

Major central banks worldwide, especially in Asia, are actively diversifying their foreign exchange reserves away from the U.S. dollar. China has been at the forefront of this effort, reducing its holdings of U.S. Treasuries to purchase substantial amounts of gold instead.

The People’s Bank of China (PBoC) continued its gold acquisition streak for the 17th consecutive month through March 2024. According to the World Gold Council, the PBoC purchased 224.88 tonnes of gold in 2023, following an acquisition of 62.1 tonnes in 2022. In the first quarter of the current year, the PBoC added another 27.06 tonnes to its reserves.

Similarly, India increased its gold purchases, acquiring 19 tonnes in Q1 FY24, surpassing its total purchase of 16 tonnes for the entire CY23. The Reserve Bank of India also repatriated 100 tonnes of its gold from the UK to its domestic vaults, as reported by The Times of India in May.

A significant number of central banks plan to continue buying gold in the coming year, driven by heightened geopolitical and financial risks that enhance the metal’s appeal. According to a recent survey by the World Gold Council, approximately 20 central banks intend to increase their gold holdings, though the survey did not specify which nations expect to buy.

Media reports indicate that the BRICS nations, now wealthier than the G7 and accounting for one-third of the world’s GDP, are discussing the launch of a BRICS cryptocurrency potentially backed by gold. This initiative aims to establish an alternative to the global order, which they perceive as being unfairly dominated by the West since World War II.

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