Gold physical investment demand could further increase in 2024 and next year, Citi strategists said in a Thursday note.

In their report, strategists maintained their 0-3 month and 12-month gold price targets of $2,500/oz and $3,000/oz, respectively. Average quarterly prices are expected to trend higher over the next year, with a 2025 estimated baseline trading range of $2,800-$3,000/oz.

Citing 2Q24 World Gold Council demand data, Citi suggests that bullion consumption growth will face challenges from the jewelry, bar/coin, and China retail channels in 3Q24. However, this is likely to be fully offset by official sector purchases, over-the-counter (OTC) and ETF investment demand, and gold-stimulative Indian tax policy.

“Indeed, it seems the multi-year bullion ETF de-stocking trend that began to reverse in late 2Q could amplify investor gold demand into a Fed cutting cycle,” strategists noted.

They project gold physical investment demand as a share of mine supply to climb 9 percentage points year-over-year in 2024 to 83% and increase another 2 percentage points in 2025 to 85%. This would be the highest share of gold investment demand since 2020 when average nominal and real gold prices rallied around 25%, and spot trading broke above $2,000/oz for the first time.

Bullion investment demand looked similarly robust during 2010-2012, following the Great Financial Crisis. Physical gold consumption, excluding jewelry, remained around 84% of mine production throughout those three years.

“We find it plausible that the financial gold ‘price floor’ has shifted higher in 2024, with strong dip-buying likely during bouts of liquidation,” strategists added.

The July Federal Open Market Committee (FOMC) did not provide explicit forward guidance on rate cuts, but Chair Powell indicated that lower policy rates could come as early as September, barring a surprise uptick in inflation.

“This can support investment flows,” strategists added.

Central bank gold demand is also expected to remain high in 2024 and 2025 despite the recent absence of reported purchases by the People’s Bank of China (PBOC) in May and June.

Citi revised down its 2024 estimate for central bank gold demand by 14% to 941 tonnes, though this is still a strong figure. The firm expects the PBOC to eventually report fresh gold purchases again, particularly in light of potential U.S. trade tariffs in 2025.

The report notes that gold bar and coin demand saw a significant decline in 2Q24, driven by weak flows from Western markets. Specifically, bar and coin demand fell 16.7% quarter-over-quarter and 4.6% year-over-year to 261 tonnes.

Record equity markets, low volatility, and a strong U.S. dollar environment likely deterred purchases in North America, strategists explained.