A dramatic plunge in gold prices has not deterred retail investors from flocking to purchase the precious metal. In Sydney, enthusiasts lined up for hours to buy gold nuggets, undeterred by sweltering heat and falling prices.
Gold prices, which have surged by 60 percent over the past year, reached a record high of $US4381 per ounce earlier this week. However, they tumbled more than 5 percent on Tuesday night, settling around $US4146.70. Despite this volatility, the enthusiasm among buyers remains undiminished.
In the heart of Sydney, Jwalit Nayak and his wife Pranjali Nayak braved 36-degree heat and swarming flies to queue for over an hour at the city’s largest gold dealer. Their goal was to collect a 24-carat gold biscuit they had prepaid for, costing $598. “It’s an asset which is not depreciating. You always get good value. In times of crisis, you can sell gold and actually get some money,” Jwalit explained.
Gold Demand and Cultural Significance
The recent surge in gold demand coincides with Diwali, the five-day Hindu festival of lights, which began on Tuesday. Traditionally, Diwali is considered an auspicious time to purchase gold, believed to invite wealth and good fortune. The Nayaks, who have been investing $1000 to $1500 in gold annually since 2019, joined the queue at ABC Bullion in Martin Place at 2 pm to collect their 2.5 gram gold biscuit. Encouraged by the price drop, they contemplated purchasing an additional 2.5 grams.
“[The price has] gone down, so we’re contemplating adding a little bit more,” Pranjali noted. “We don’t want to sell it. It’s just for the investment,” Jwalit added, emphasizing their long-term strategy.
Retail Rush and Market Dynamics
ABC Bullion security guard Douglas Snoodijk has been managing the long queues for the past three weeks. “This is a quiet day,” he remarked, observing about 70 people in line on Wednesday afternoon. Snoodijk typically cuts the line off by 3:30 pm to prevent disappointment among the customers, some of whom become frustrated by the wait.
“Some are just wanting to get in because they’ve seen everything grow. Silver’s gone crazy, gold had gone crazy last week. So [it’s] FOMO, they want a piece of that pie,” Snoodijk explained.
Expert Insights and Market Outlook
AMP Deputy Chief Economist Diana Mousina noted that the recent rally has been driven by retail demand, with political uncertainty over the past five years boosting interest in gold. “Since 2020, we have actually seen quite a large increase in the pace of central bank purchases of gold,” Mousina said, highlighting gold’s role as a reserve asset alongside currency.
Although Mousina considers current gold prices overvalued, she believes geopolitical risks could sustain price growth over the next 12 months. Meanwhile, Hugh Dive, Chief Investment Officer at Atlas Funds Management, compared the current gold rush to the dotcom boom of the late 1990s and early 2000s, a period marked by speculative fervor that eventually led to a market crash.
“It’s retail investors piling in towards the end,” Dive observed. “I could be wrong, it could keep going up, but it has the feeling of the dotcom boom.”
Dive warned of the inherent volatility in gold prices, noting the difficulty in valuing the commodity compared to other metals or assets. His fund has avoided investing in gold mining shares, as many miners are reinvesting profits into increasing production, potentially leading to a supply glut.
“There’s a supply response coming through,” Dive cautioned, suggesting that increased production could eventually temper the current enthusiasm for gold.
Looking Ahead
The persistent demand for gold, driven by cultural factors and economic uncertainties, highlights the metal’s enduring appeal as a safe-haven asset. As investors continue to navigate volatile markets, the dynamics of supply and demand will play a crucial role in shaping gold’s future trajectory.
For now, the fervor surrounding gold investment shows no signs of abating, with retail investors remaining undeterred by short-term price fluctuations. As the market evolves, the interplay between geopolitical developments, central bank policies, and consumer sentiment will be pivotal in determining gold’s path forward.
