Gold price nears historic high: Banking crisis + China reopening, will the upward trend continue?

According to TVC data, the price of gold has reached $2015.94 per ounce (Refinitiv data shows a recent high of $2072), what are the reasons?

Gold Prices Continue to Rise, While Gold ETF Funds Are Flowing Out

Despite the continuous rise in gold prices, gold ETFs experienced fund outflows last year, a trend that has continued into Q1 of this year.

The rise in high-yield bonds has led gold ETF investors to shift towards embracing the bond market. Approximately $1.5 billion in gold ETF funds flowed out in Q1, equivalent to around 29 million ounces of gold. However, the outflows reversed after the banking crisis erupted in March.

John Reade, Chief Market Strategist at the World Gold Council, mentioned that the further increase in gold prices will depend on whether the banking crisis in the U.S. worsens and when the Federal Reserve will cut interest rates.

Reade's statement is based on the fact that gold prices usually move inversely to "real interest rates." Since gold does not yield interest, the incentive for the public to hold gold diminishes as real interest rates rise. Last year, the Federal Reserve began raising interest rates significantly. Although gold prices did decline, the drop was not as substantial as expected, possibly due to increased geopolitical risks. Many countries needed to purchase energy from sanctioned countries (such as Russia) using gold.

The Federal Reserve hinted at pausing interest rate hikes this Wednesday, and whether this will further drive up gold prices remains to be seen.

While some analysts have raised their expectations for gold prices, there are also many opposing views, suggesting that the central bank's buying power may not be as strong in 2023 as it was in 2022.