Physical gold demand likely softened in the second quarter compared to the first, although “off a very strong base,” Citi analysts said in a Tuesday note.

The Wall Street behemoth notes that underlying gold consumption growth is still trending positively for 2024, potentially driving spot trading towards a record average price range of $2,400-$2,600 per ounce in the second half of the year “as financial investors play catch-up.”

Non-monetary gold imports into China decreased to a robust 137 tons per month in the second quarter from an unprecedented 189 tons per month in the first quarter. Citi continues to project a record 1,750 tons of onshore bullion imports in 2024, marking an 18% year-on-year increase and an eightfold rise from the 2020 pandemic levels.

“If our assessment is accurate, Chinese retail gold imports would represent 47% of world gold mine output in 2024, versus a 2021-2023 average of 34% and a 2017-2019 average of 36%,” the analysts state.

Meanwhile, official sector gold demand has stabilized at a record 28-30% of gold mine production since 2022, with the potential to increase towards 35% in a bull case scenario over the next year due to trade wars and concerns about US fiscal policies, Citi said.

Analysts model a record ~1,100 tons of central bank gold buying in 2024, a 5.8% year-on-year increase, with the possibility of exceeding 1,250 tons in a bullish scenario.

Moreover, inflows into gold exchange-traded funds (ETFs) should also improve in the second half of the year as the Federal Reserve begins its rate-cutting cycle, Citi added.

“We remain constructive on gold physical uptake over the next 12 months with a potential Fed cutting cycle and US labor market headwinds buttressing paper demand for the yellow metal,” the bank’s analysts wrote.

Their base case price targets for gold are $2,800-$3,000 per ounce by mid-2025, representing a 10-20% increase versus the forwards.