Central Banks Shift from U.S. Bonds to Gold, According to Julius Baer

Gold Prices Continue to Rise Amid Central Bank Strategies

The notable recovery in gold prices is being supported by central banks that are shifting their investments away from U.S. Treasury securities. This insight was highlighted by the Swiss financial group Julius Baer, which anticipates that while prices will remain at relatively high levels, they are unlikely to see significant increases in the near future. As of Wednesday, gold futures have climbed 1.36%, reaching $2,392.05 per ounce.

Carsten Menke, head of next-generation research at Julius Baer, noted that the remarkable recovery in gold does not stem from a substantial surge in demand, but rather from buyers showing increased willingness to pay, combined with speculative activities.

Menke suggests that monetary authorities, particularly the People’s Bank of China, may exhibit a stronger willingness to invest compared to Western investors, with motivations being more political than economic. However, he believes that this shift in buying behavior is likely to be "much less widespread than anticipated."

The Swiss financial group posits that the Chinese central bank has been decreasing its investments in American Treasury bonds to reduce reliance on the dollar and minimize exposure to potential sanctions. Consequently, purchases by central banks are expected to stabilize prices at high levels but may not drive them higher.

Overall, Julius Baer sees more potential risks than rewards for gold in the medium to long term, although they acknowledge its essential role as a safeguard against economic and systemic risks within financial markets.