Current Retail Demand for Gold in China Is “Off the Charts,” Says Citi’s Max Layton

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As a researcher with a strong background in commodities and experience working at top financial institutions, I find Max Layton’s analysis on the future of gold prices to be both insightful and persuasive. His projection of gold reaching $3,000 per ounce over the next 12 months is grounded in solid fundamentals, such as the anticipated shift in U.S. monetary policy and the unprecedented demand from China.

During an interview on Bloomberg TV on May 24, Max Layton, the Global Head of Commodities Research at Citigroup, offered intriguing perspectives on the future gold market. According to Layton’s forecast, gold could potentially hit $3,000 per ounce within the next year. The reasons behind this projection stem from several crucial factors. Among these factors are the U.S. dollar‘s value, Federal Reserve monetary policies, and most notably, China’s substantial demand for gold.

Layton brings extensive experience in commodities research to the table. Prior to joining Citi in 2017, he held prominent roles at Goldman Sachs, where he served as Managing Director and Head of European Commodities Research, Macquarie, and the Reserve Bank of Australia. During his tenure at these esteemed institutions, he made significant contributions to commodities research. At Citi, he has been instrumental in shaping the bank’s strategy regarding industrial metals and bulk commodities.

The Impact of the U.S. Dollar and Federal Reserve Policies

As a crypto investor, I’d like to share some insights I gained from Max Layton’s perspective on the FX markets and the U.S. dollar. In his analysis, he highlighted the negative correlations between metals such as platinum, copper, and silver, and the dollar. The reasoning behind this trend is the expectation of multiple Federal Reserve rate cuts in 2023. While most market consensus anticipates only one cut, Citigroup’s research suggests a more aggressive stance with five rate cuts. This divergence could potentially amplify the impact on these metal prices.

I believe that the expected decrease in real interest rates by year-end and into the beginning of next year will significantly boost gold prices, as historically proven. Gold’s unique sensitivity to adjustments in real interest rates makes it a prime candidate for substantial gains. My analysis is founded on this anticipated monetary policy shift, which I project could push gold prices up to $3,000.

China’s “Off the Charts” Demand for Gold

One significant factor fueling optimism toward gold is the extraordinary demand originating from China. According to Layton’s assessment, the current appetite for gold among Chinese retail buyers is extraordinarily high and unprecedented in his professional experience. Instead of investing in real estate, an increasing number of Chinese consumers are shifting their spending towards gold, leading to a significant drain on the existing gold supply.

Layton gave an approximation that around 40-50% of the funds previously allocated for property investment are now being redirected towards gold. This transition has resulted in Chinese retail consumers absorbing about two-thirds of the gold supply originating outside China during the past few months. In conjunction with central bank purchases, this substantial demand leaves very limited gold supplies available for the jewelry sector, intensifying the scarcity of gold even further.

Potential Risks and Investment Strategies

Although Layton maintained a positive perspective, he didn’t overlook the possible challenges, primarily concerning China’s undisclosed import quotas for gold. The Chinese authorities manage these quotas, and any restrictions on gold imports could result in decreased supply, negatively impacting market prices.

Layton outlined various methods for investing in gold when queried about the most effective approaches. He declined to suggest particular stocks or exchange-traded funds (ETFs) due to regulatory restrictions, instead focusing on the diverse means through which investors can acquire gold. These include purchasing physical gold, engaging with commodities markets, and utilizing readily available liquid ETFs within the U.S. financial markets.

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2024-05-24 17:46