Gold: A Tale of Two Markets - Rising Prices and Falling Demand

This encouraged investors, pushing gold prices higher than initial expectations. With inflation showing signs of cooling, gold remains attractive as a safe-haven asset.

The Physical Market: A Different Story The physical market picture tells a different story. Rising gold prices have dampened retail investment excitement in major markets such as Europe and the US. Instead of making new purchases at these high levels, investors are choosing to resell and protect their profits. This shift in sentiment has led European refiners to explore alternative markets, with Turkey emerging as a new focus. Turkey: Gold Rush Fueled by Elections and Restrictions Turkey is currently facing unprecedented demand for gold and record premiums. This increase is due to a combination of factors, including the upcoming elections and ongoing currency struggles. The quota system implemented by the Turkish government limits gold imports to just 14 tonnes per month, creating a supply bottleneck. This limited supply, combined with rising demand, has caused premiums to rise even further, pushing premiums to record levels of around $150 per ounce. The Turkish State Mint is expected to produce a staggering 40 tons of coins in the first quarter of 2024 alone, reflecting the country’s extraordinary demand. Other Markets Contrast While Turkey is experiencing a gold rush, other major markets are doing the opposite. Dubai’s gold souks, once brimming with local buyers, now cater primarily to tourists as local demand has weakened under the influence of high prices. This has led to discounts in the Dubai market. India, a traditional gold consumer, is also facing weak demand due to high prices, which is affecting Dubai’s position as a major gold supplier. China, another major gold consumer, presents a unique situation. Unlike other markets, the high premiums in China last week, around $15 per ounce, were driven by local factors such as deflation and the troubled real estate sector rather than global price trends. The Road Ahead: Uncertainties and Opportunities The future path of the gold market remains shrouded in uncertainty. A correction below $2,000 could prompt renewed retail participation. Alternatively, if investors adjust to the new price level above $2,100, we could see a resumption of buying activity. Regardless of the short-term outlook, market experts generally expect a recovery in physical demand in the second half of 2024. Stay tuned for more analysis and insight as we navigate this complex and dynamic market in our biweekly updates on global gold markets.