Gold prices have hit record highs. Here's why they could rally further

Gold prices still have room to rise after hitting all-time highs early this month, as several central banks continue to purchase bullion in record amounts. 

These purchases have strengthened gold prices despite high interest rates and a strong dollar, market watchers told CNBC.

Higher rates tend to reduce the appeal of gold compared with bonds as it does not pay any interest, while a stronger dollar erodes the sheen of greenback-priced bullion for holders of other currencies.

"Central banks, who have bought historic levels of gold over the past two years, continue to be strong buyers in 2024 as well," World Gold Council Global Head of Central Banks Shaokai Fan said. 

Strong physical demand for gold is also fueled by its appeal as a safe-haven asset amid geopolitical uncertainties.

"In the past decade, Russia and China have been the two largest buyers. However, central bank purchases in recent years have diversified," Aakash Doshi, Citi's North America head of commodities research, told CNBC.

China is the leading driver for both consumer demand and central bank gold purchases, and the country's not likely to slow down.

Among central banks, the People's Bank of China was the largest buyer of gold in 2023. China's weak economy and embattled real estate sector also drove more investors toward the safe-haven asset, with individual gold investment remaining robust, WGC said.

Poland's central bank was the second-largest net consumer of gold, snapping up 130 tons of bullion in 2023.

Challenges of the Russia-Ukraine war "just right next door" drives Poland's desire for stability, said Wheaton Precious Metals CEO Randy Smallwood.

Poland's central bank governor Adam Glapiński in 2021 had announced plans to buy 100 tons of gold in a bid to