Why Are Family Offices Buying Gold?

The Surge in Gold Demand

According to a sector report, affluent families and individuals concerned about the US public debt levels have been the likely drivers of a record second quarter in gold demand, pushing prices to all-time highs this year.

Gold Purchases and Prices

Private purchases of the safe-haven asset rose to 329 tonnes in the three months up to June, nearly five times more than the previous quarter.
This contributed to a 4% increase in gold demand to 1,258 tonnes in the quarter, the highest level in the April-June period since recordings began in 2000.

Gold prices hit a historic high of $2,483.60 per troy ounce in early July, driven by growing expectations of interest rate cuts, benefiting non-yielding assets like bullion by lowering bond yields, and uncertainty over the outcome of the US presidential elections following President Joe Biden’s disastrous debate performance last month.
The metal is currently trading at around $2,380 per troy ounce.

Factors Driving the Demand

John Reade, WGC’s market strategist, mentioned that anecdotal evidence suggests that wealthy US family offices have been one of the main groups accumulating gold due to concerns over unchecked fiscal deficits.

Investors are worried about the sharp increase in US federal debt levels, especially if Republican presidential candidate Donald Trump wins in November.
The Congressional Budget Office predicts that US debt will exceed the World War II peak of 106% of GDP in 2029, with the fiscal burden on an “unprecedented” trajectory, according to its director earlier this year.

Global Gold Trends

Off-exchange gold purchases have become increasingly relevant in the gold market, reflecting speculative positions in the futures market and demand from wealthy individuals.
Strong activity has been observed in Singapore and Hong Kong by wealthy Asians and Turks turning to gold amidst significant currency devaluations.

The surge in purchases by affluent individuals coincides with positive flows into gold-backed ETFs in recent weeks, signaling Western investors’ participation in the rally.
Central banks’ net purchases have also aided the rise in gold prices by a third since the beginning of 2022, reaching record levels in the first half of the year.

Regional Variances

While Chinese consumers and investors were driving the gold surge in the first half of the year, they have slowed down purchases after the People’s Bank of China suspended acquisitions in May.
Jewelry purchases have also been affected by price hikes, dropping by 19% in the second quarter compared to a year ago.

Source: Money.it