In 2023, gold demand surged to unprecedented levels, primarily fueled by persistent geopolitical tensions and China’s economic vulnerabilities. The World Gold Council reported a total of 4,899 tons in gold transactions last year, compared to 4,741 tons in 2022, encompassing both over-the-counter (OTC) deals and stock flows reflecting changes in commodity exchange inventories.
Annual gold demand (excluding OTC) of 4,448t was 5% below a very strong 2022. Inclusive of significant OTC and stock flows (398t), total gold demand in 2023 was the highest on record at 4,899t.
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The major catalysts for heightened gold demand in 2023 were the Russia-Ukraine conflict, the Israel-Hamas dispute, and the economic slowdown in China. According to Shaokai Fan, the global head of central banks at WGC, these factors may continue to drive gold prices upward throughout 2024.
Gold prices hit a record high of $2,100 per ounce in December 2023 as central banks and retail investors increased their gold purchases. Central bank acquisitions exceeded 1,000 tons for two consecutive years, making 2023 the second-highest year in the history of central bank gold buying.
The People’s Bank of China emerged as the top gold buyer in 2023, acquiring 225 tons and increasing its total stock to 2,235 tons. China’s real estate crisis, particularly the liquidation of China Evergrande, also contributed to more investors turning to gold.
Total gold demand is anticipated to continue growing in 2024, driven by the Federal Reserve’s move towards cutting interest rates. Gold becomes attractive to investors during rate-cutting periods due to lower Treasury yields and a weakened dollar.
Despite outflows from gold-backed ETFs and subdued demand for bar and coin investments, the average gold price reached a record $1,940 per ounce in 2023, marking an 8% increase from 2022.
Turkey emerged as the largest central bank buyer of gold in 2023, with a notable increase in its share of foreign reserves held in gold. This was attributed to Turkey’s historical affinity for gold ownership and its economic conditions.
On the negative side, gold-backed ETF outflows continued in 2023, losing 244 tonnes, with European outflows dominating the picture. Bar and coin demand for investment also saw a 3% decline.
Geopolitics To Boost Gold In 2024
As of January 2024, global gold ETFs experienced the eighth consecutive monthly outflow, worth USD$2.8 billion, led by North American funds. The stronger dollar and a higher 10-year US Treasury yield contributed to this trend.
Despite challenges, economic and geopolitical uncertainties are expected to persist in 2024, maintaining the demand for gold as a safe haven asset. Central bank buying is predicted to offset a potential slowdown in consumer gold demand due to high gold prices and slowing economic growth.
A technical analyst suggests that corrections in gold and silver prices are concluding, anticipating a rally to new record highs, especially if the US dollar and 10-year Treasury yield peak.
In terms of gold bars and coins, the country’s investments rose by 28% in 2023, reaching 280 tons. Chinese investors are turning to gold to safeguard their portfolios amid concerns about other asset classes.
China surpassed India as the world’s largest gold jewelry buyer in 2023, with 603 tons purchased, a 10% increase from the previous year. This surge was attributed to postponed weddings following the reopening of the economy in late 2022.