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Wealthy families and individuals worried about US government debt levels were the probable drivers of a record second quarter in demand for gold, according to an industry report, pushing the price to all-time highs this year.
Opaque private purchases of the haven asset surged to 329 tonnes in the three months to June, almost five times higher than the previous quarter, according to a report by the World Gold Council, an industry promotion group.
This helped lift demand for gold to 1,258 tonnes in the quarter, its highest level in the April to June period since records began in 2000 and a 4 per cent rise on a year earlier.
The gold price hit a record high of $2,483.60 per troy ounce earlier this month, driven by growing expectations of interest rate cuts — which would benefit non-yielding assets such as bullion by dimming the returns on bonds — and uncertainty over the outcome of the US presidential election. The metal is trading at around $2,380 per troy ounce.
John Reade, chief market strategist at the WGC, said anecdotal evidence suggested wealthy US family offices were one of the main groups scooping up bullion because of 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,” he said.
Investors have been jittery about ballooning US federal debt levels, particularly if Republican presidential candidate Donald Trump wins in November. The Congressional Budget Office, an independent fiscal watchdog, projects US debt will surpass its second world war high of 106 per cent of gross domestic product in 2029. Its director said earlier this year that the fiscal burden was on an “unprecedented” trajectory.
Over-the-counter purchases of gold have become an increasingly important factor in the gold market, although the transactions are difficult to track because commercial banks arrange deals with buyers privately.
The purchases tend to reflect buying to hedge speculative positions in the futures market, as well as demand from wealthy individuals.
Reade also reported strong activity in Singapore and Hong Kong from wealthy Asians, as well as rich Turks turning to gold as the lira devalued dramatically.
The buying spree by wealthy individuals and families comes as flows into gold-backed exchange traded funds have turned positive in recent weeks, in a sign that western investors are finally buying into the rally. June and July had five consecutive weeks of inflows totalling 39 tonnes, following two years of consistent selling.
Central bank net purchases, which have helped push up the gold price by a third since the start of 2022, hit 483 tonnes, a record level for the first half of a year. However, this included a 39 per cent drop between the first and second quarters. That could make it less likely that central bank buying exceeds 1,000 tonnes this year, after it reached this level for the previous two years.
Chinese consumers and investors who drove gold’s surge in the first half of the year have, however, started to slow their buying after the People’s Bank of China paused purchases in May.
Purchases of gold jewellery have also been hit by higher prices, falling 19 per cent to 390 tonnes in the second quarter compared with a year ago.