Economy Update – Baghdad
Gold prices soared to an unprecedented $2,940 per ounce last Thursday, marking the first time the market value of gold surpassed $20 trillion. This surge is attributed to escalating trade tensions between the United States and Europe, which have heightened concerns over a potential slowdown in the global economy.
While increased demand for safe-haven assets is a significant contributor to this price surge, another potential factor could be the re-evaluation of American gold reserves.
According to data from the World Gold Council (WGC), central banks have been notable buyers, acquiring more than 1,000 tons of gold for the third consecutive year in 2024.
The National Bank of Poland (NBP) led the way by adding 90 tons to its reserves, while the People’s Bank of China (PBOC) announced its intention to purchase an additional 5 tons starting in 2025, bringing its total reserves to 2,285 tons. Iraq emerged as the leading buyer in 2024, acquiring 22.1 tons to increase its holdings to 162 tons.
Central banks are increasingly regarded as “smart funds” in the gold market; their ongoing accumulation of gold reflects a broader strategy aimed at diversifying reserves and hedging against various policy risks. This buying activity not only supports gold prices but also establishes a conducive environment for gold as a long-term investment.
On the supply side, global gold production reached a record 4,974 tons in 2024, fueled by enhanced mining efforts and recycling initiatives.
Initial projections indicate that mine production peaked at 3,661 tons; however, final figures may re-evaluate this estimate. Long-term production forecasts, however, are less optimistic.
According to Paul Manalo from S&P Global, gold supply is expected to reach its zenith in 2026 before witnessing a decline due to diminishing new discoveries.
Exploration budgets have risen to $7 billion in 2022, exceeding historical averages. This trend is likely to uphold higher gold prices in the long term, particularly if demand from central banks and investors remains robust.
The environment of elevated gold prices has empowered mining companies to expand operations, prioritize sustainability initiatives, and attract investor interest.
Estimates from NYSE: BAC indicate that the firms under its coverage could generate around $3 billion in free cash flow (FCF) in the final quarter of 2024, with further growth anticipated in 2025.
Gold continues to play a critical role in portfolio diversification, and its function as a hedge against inflation, currency devaluation, and geopolitical uncertainty is arguably more pertinent now than ever for long-term investors.
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