- In the first three months of the year, central banks increased global reserves of the precious metal by 228 tons.
- This is the highest purchase rate recorded in a first quarter for two decades.
- Banking turbulence in the U.S. over high interest rates and recession fears have boosted gold investments.
- JPMorgan forecasts that investors will turn their gaze this year to gold and technology investments.
In the first quarter of the year, gold demand among central banks around the world reached record levels as investors see a mixed picture globally, said a report released this week by the World Gold Council.
Prices of the precious metal broke through the $2,000 per ounce barrier and are expected to reach record highs as a result of the prevailing uncertainty about the performance of the global economy this year.
This would be possible following the latest interest rate hike of 25 basis points (0.25%) by the US Federal Reserve, and the additional problems that could drag down the US banking sector.
Market analysts see a possible pause in benchmark interest rate increases as feasible soon. If so, investors would be pushed to reinforce their positions in gold and technology, according to JPMorgan.
Continuation of a trend that started in 2022
In its quarterly report on Friday, WGC‘s Gold Demand Trends, indicated that gold demand (excluding the over-the-counter market) fell 13% during the first three months of the year compared to the same period in 2022.
But last year’s increase was a direct consequence of Russia’s invasion of Ukraine. Investors dumped risky assets and took refuge in gold. Since then total gold demand has grown by 1% due to the market recovery.
From January through March, central banks added another 228 tons to their international reserves. This is the largest rate of gold accumulation in a first quarter since 2000 when these statistics began to be kept. However, this rate is lower than in recent quarters.
Senior market analyst at the World Gold Council, Louise Street, explained that the increase in gold reserves is a continuation of a buying trend seen last year by central banks.
“The top of the tree for gold in terms of why official industry institutions hold it is always things like its role as a diversification asset,” Street told CNBC.
He added that they are looking at gold’s “long-term store of value, but increasingly over the last couple of years, we’ve seen how much importance they put on its performance in times of crisis.”
The World Gold Council, however, expects that demand for the precious metal will tend to moderate in the following months of the year. Although it warned that previous purchases were concentrated in developing markets. Now demand is growing in the world’s most developed financial centers.
JPMorgan: Investors to opt for gold and technology
The U.S. bank believes that amid fears of recession in the U.S. economy, investors are likely to opt for gold and technology stocks. Gold is an asset that has historically served as protection for investors and countries.
In a note, strategists at JPMorgan Chase & Co, the “long duration” trade will bet more on gold, as well as growth stocks of technology companies and currencies (USD short).
Strategists such as Nikolaos Panigirtzoglou and Mika Inkinen, added that this investment option does not involve making large gains, due to the fact that there is currently a very inverted yield curve.
“The U.S. banking crisis has increased demand for gold as an indicator of lower real rates as well as a hedge against a ‘doomsday scenario,'” they said.
For JPMorgan, the long duration theme seems to be part of the consensus of investors and analysts in recent months. They noted that this type of operation looks “relatively attractive” because the downside is limited in the event of a mild recession in the U.S. However, if a deeper recession occurs, the upside is greater.