BofA have their say on the recent gold rout
(Kitco News) - Bank of America say gold prices have struggled due to the decline in physical demand for gold by central banks
The American bank still expects gold prices to average at $2,063 in 2021, a forecast which was set last year. having said that, the bank's commodity research team published on Tuesday saying the gold market in recent weeks has bumped up against challenges after the "furious" rally early in the first half of 2020. Meanwhile, the commodity has been "walking the fine line between inflation and rates."
The research note said a decline in physical demand for gold by central banks has been a challenge for gold, says Bank of America. Jewellery sales have been disappointing as the COVID-19 pandemic suppressed customer activity. A "lack of interest" from investors in buying gold has also been a pressure point for the market.
"Gold purchases by central banks serve as a staple for the market but BofA said there have been signs of "fading" demand. The World Gold Council in January said gold purchases by central banks were about 60% lower year-over-year in 2020. Gold's performance during the year increased reserve portfolios, leading some central banks to spot "an opportune time to obtain liquidity to support their struggling economies," during the pandemic, said WGC in outlining factors that led to the slowdown in gold purchases.
They went on to say "Jewelry sales have been 'disappointing,' the firm said. The pandemic exacerbated softness in the key Indian jewellery market and last year stoked drop in sales in China, BofA said. China is one of the world's largest markets for luxury goods. "While activity has since expanded [year over year], it remains below longer-term ranges," the analysts noted.