Gold prices fell 8% yesterday after hitting a record high of $5,505/ounce, but speculative demand remains

In global markets, the share of speculative capital of private players trying to profit from price jumps is growing. Over the year, gold prices, and especially silver, have increased significantly.

Yesterday, spot gold prices, after reaching a record high of $5,505/ounce at 5:00 PM, fell to $5,098/ounce at 5:15 PM, but ended trading at $5,150/ounce, up 72% from last year.

Spot silver quotes rose to a record high of $121.75/ounce yesterday, and fell 14% over the next 15 minutes of trading, ending the session at $110/ounce (+310% year-to-date).

Gold prices have surged in recent months on the back of heavy buying by central banks seeking to avoid the dollar amid geopolitical risks, but recent data casts doubt on whether regulators remain the main driver of the market, the Financial Times reports.

After the start of the full-scale Russian invasion of Ukraine in 2022, world central banks did indeed sharply increase their purchases of gold to over 1,000 tons per year, which gave investors reason to proclaim the thesis of the “end of the dollar era.” But now the situation has changed significantly.

While the reports of exchange-traded funds show demand from private investors in real time, central banks publish their data with a delay. Therefore, experts are guided by indirect indicators, primarily customs statistics. London remains the world’s largest gold trading hub, and gold exports from the UK are considered an indicator of purchases made by central banks.

The data suggests that British gold exports have been declining over the year, with November shipments down 80% in physical terms from a year earlier, contradicting the idea of a reallocation of reserves in favour of gold.

Even China, the largest buyer in recent years, has cut back on purchases. It has officially been building up its reserves for 14 consecutive months, but November deliveries from London amounted to less than 10 tons, which is significantly lower than previous rates. Data from the London Bullion Market Association (LBMA) give similar signals: the growth of reserves in storage usually coincides with low exports, and therefore weak demand from central banks.

Experts note that against the backdrop of rising prices, central banks usually reduce purchases, trying to preserve the share of gold in reserves, rather than increase it at any cost. Against this background, the opinion is becoming stronger that the current increase in quotations is due not to the strategy of states, but to speculative demand from investors.

So we can assume that the gold rush is ongoing, but it is not caused by central banks. Therefore, we expect that large funds will again, like yesterday, make small investors and arrange a strong sell-off and buy-back at low levels.

Tags: prices