The futures market surged 1.6%, breaking through $3,100, with Goldman Sachs and Bank of America both raising their target prices

Gold prices hit a new historical high.

On Thursday, during the early trading session of the U.S. stock market, New York futures gold rose about 1.6% to above $3,100, setting a new historical high. Spot gold also rose over 1.26%, refreshing its historical high to $3,059.62.

At this moment, bullish sentiment on Wall Street is heating up. Goldman Sachs raised its year-end gold price target from $3,100 per ounce to $3,300, while Bank of America is more optimistic, projecting "a potential rise to $3,500 in the next 18 months."

Although major banks' bullish calls always attract attention, the more pressing question for investors is: What is driving the surge in gold prices? What forces are at play behind it? How much higher can it go, and is it still worth buying?

Is there still room for growth?

Several major Wall Street banks pointed out that the current rise in gold prices is driven by a relay race involving central banks, ETFs, and insurance funds.

Bank of America's analysis links the rise in gold prices to "an increase in investment demand." The Bank of America team stated that its gold pricing model considers multiple dimensions, including mining, recycling, jewelry demand, and investment demand.

The results of its gold pricing model indicate that if gold prices are to maintain an average of $3,000 this year, global investment demand only needs to increase by 1%. If gold prices are to rise to $3,500 per ounce in the next 18 months, global gold investment demand needs to grow by 10% year-on-year.

Bank of America pointed out that the upward momentum of gold largely depends on whether new buyers continue to enter the market, and one of these new buyers is China's insurance institutions. Although this condition is not easy, considering the structural increase in allocation by central banks and Chinese insurance funds, it is not impossible.

1. Chinese insurance funds entering the market

In February of this year, Chinese regulators approved 10 leading insurance companies to participate in a gold investment pilot program. The pilot scope covers spot gold and related derivative contracts on the Shanghai Gold Exchange. Participating institutions include China Life, PICC, Ping An, Taikang, and Xinhua, among other large insurance companies.

Bank of America's China insurance team estimates that based on the regulatory pilot notice's upper limit of "no more than 1% of total assets," the theoretical scale of funds that insurance funds can allocate to the gold market is between 180 billion to 200 billion RMB, equivalent to about $25 to $28 billion.

Bank of America analysts pointed out that considering the current low interest rate levels, insurance institutions are under pressure on returns from traditional assets, and gold is regarded as a high-quality asset worth holding long-term, capable of countering the risk of declining returns. It is expected that these companies will actively utilize their gold investment quotas and use their reserves within a year. Based on this calculation, gold purchases could reach about 300 tons, accounting for 6.5% of the global annual physical gold market.

Bank of America believes that under the current macroeconomic context, this pilot arrangement for Chinese insurance funds is expected to support the growth trend of global physical gold investment demand since last year Goldman Sachs also believes that while the short-term impact of insurance funds allocating to gold is limited, the funds from these companies have not yet flowed into the market. However, as long-term capital, if pilot promotions are successful, it will provide medium to long-term support for gold prices, especially during market adjustment phases, potentially becoming a "bottoming force."

2. Central Banks Continue to Buy Gold

Secondly, central banks have become the largest buyers. In particular, central banks in emerging markets have significantly accelerated their gold purchasing pace since the Russia-Ukraine conflict in 2022. Taking China as an example, gold currently accounts for only about 8% of its foreign reserves, far below the average level of 70% in developed countries in Europe and the United States.

Goldman Sachs estimates that if the People's Bank of China raises the gold proportion to the global average level of 20%, it would take about 3 years at the current purchasing pace. If the target is 30%, it would take about 6 years. This structural trend determines that gold has long-term capital support.

Since 2022, the Federal Reserve's aggressive interest rate hikes, the lingering shadow of the banking crisis in Europe and the United States, the rising sentiment of de-dollarization globally, and the freezing of assets by the Central Bank of Russia have led to a renewed recognition of asset safety, making gold once again the "default allocation" for central banks and institutions.

A survey by the World Gold Council shows that currently, 83% of central banks hold gold in their international reserves. The primary reason for central banks to buy gold is no longer "historical asset," which has dropped to fifth place, while the top four reasons are "long-term value preservation/inflation hedging," "stability during crises," "portfolio diversification," and "no default risk."

3. ETF Fund Inflows

Furthermore, the inflow of ETF funds has also boosted gold prices. Recently, global gold ETFs have seen strong capital inflows, reflecting a significant increase in investors' demand for safe-haven assets and hedging against dollar asset risks, especially against the backdrop of fluctuating expectations for U.S. interest rate cuts and frequent discussions of "policy tail risks," with gold once again being viewed as the ultimate safe asset