Certainty Through Uncertain Times

So far, gold has hit a series of record highs, even as traders reduce their expectations for US interest rate cuts this year. With geopolitical uncertainty also unlikely to abate in the short-term, it is likely that the flight to gold will continue, but with what impact?

Taking stock of 2023

Starting with price, there was a record-high year-end close for the price of gold. The LBMA (PM) gold price ended the year at US$2078.4/oz, generating an annual return of 15%. The average 2023 gold price of US$1940.54/oz was also a record and up 8% from 2022.

High prices usually go hand in hand with strong demand, but gold supply has also been high, pointing to extraordinary demand in 2023 to keep prices elevated. So, what is driving that demand and why? As is well-known in the industry, demand for gold is sustained within four key areas – investment in gold by individuals and institutions, be that buying gold bars and coins or via investment products, such as exchange-traded funds (ETFs); central banks purchasing; the global jewellery market; and industrial use – primarily in technology.

In that sense, 2023 was no different, but underneath the surface of the global gold market, there were significant differences between demand sectors that are important in helping to understand what to expect in the coming months.

Annual gold demand (excluding over-the-counter (OTC)) fell to 4448 t in 2023, while total demand (including OTC) was the highest on record at 4899 t – supported by central banks, OTC investment, and a resilient jewellery market.

Unwavering demand from central banks was supportive of gold demand, helping offset weaknesses in other areas and keeping 2023 demand well ahead of the 10-year moving average. 2023 was the second-highest year for central bank demand at 1037 t – just 45 t shy of last year’s record buying.

Annual gold investment demand (excluding OTC) dropped to a 10-year low at 945 t, driven by ETF outflows and modest decline in bar and coin demand. However, ‘OTC investment and Other’ was a significant component of 2023 demand, adding 450 t. This opaque source was evidenced in 4Q23 as the gold price rallied, despite continued ETF outflows.

Global jewellery demand was resilient (marginally firmer at 2093 t) despite record-high prices. In value terms, the market saw 8% growth to a record US$131 billion. China was a major contributor to the global total, with a 17% increase in 4Q23, lifting the annual total by 630 t (+10% y/y). Strength in China helped offset weakness in India, where demand fell by 6% in 2023, primarily due to high local prices.

In technology, full-year demand was down 4% to 298 t, driven by weak electronics demand through the year. However, a 4Q23 rebound driven by tech demands related to AI drove resiliency in the last quarter.

In order to best understand what the global gold industry might expect in the coming year, it is useful to analyse some key aspects of gold demand drivers in greater depth.

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