Global central banks have continued to show a strong interest in gold throughout 2023, with expectations of sustained high purchasing rates. As economic uncertainties and geopolitical tensions persist, the rush for safe-haven assets is fueling this trend, as reported by the World Gold Council.
In the past year, banks globally acquired a staggering 1,037 tons of gold, falling just 45 tons short of the previous record set in the prior year (1,082 tons). This remarkable buying spree serves as a testament to gold’s enduring role as an inflation hedge and a store of value during times of crisis. It is noteworthy that the People’s Bank of China stands out as the leading buyer, contributing significantly to the overall increase in purchases.
Louise Street, senior market analyst at the WGC, states that “unwavering demand from central banks has once again fueled gold’s popularity and compensated for weaknesses in other market sectors. This consistent demand has helped keep 2023’s figures well above the ten-year moving average.”
The report by the WGC reveals that total gold demand, inclusive of over-the-counter markets, reached an all-time high of 4,899 tons last year. This surge in demand has had a significant impact on gold prices, which averaged $1,940.54 per troy ounce in 2023—an impressive 8% increase from the prior year. Excluding over-the-counter markets, demand amounted to 4,448 tons, slightly down by 5% compared to 2022 levels.
In contrast, global gold exchange-traded funds experienced their third consecutive annual decline, with holdings decreasing by 244 tons overall. However, it is worth noting that the rate at which funds were withdrawn decreased towards the end of the year. The decline in holdings was particularly pronounced in Europe.
Despite challenges in certain market sectors, central bank demand for gold remains resolute. As economic uncertainties persist, gold continues to shine as a safe and valuable asset, attracting global attention and driving prices to new heights.
Gold Market Outlook for 2020
Investments in gold experienced a slight decline of 3% in the form of bars and coins last year, amounting to a total of 1,190 tons. The decrease in Europe was offset by a strong post-pandemic recovery in China. Surprisingly, the jewelry market remained resilient with consumption holding steady at 2,093 tons despite the record-high prices.
Looking ahead to this year, the World Gold Council (WGC) predicts that rate cuts and geopolitical uncertainties, including trade tensions in the Middle East and over 60 global elections, will continue to support the demand for gold. This favorable environment is expected to encourage investors to turn to gold as a safe haven asset.
While the total investments in gold are likely to increase, a significant portion of the demand may come from the less visible over-the-counter (OTC) segment, adding an element of uncertainty, according to the WGC.
Gold exchange-traded funds (ETFs) are anticipated to rebound by the middle of the year, driven by rate cuts and heightened geopolitical risks. Similarly, the trend of central banks buying gold is expected to remain intact, although it is unlikely to reach the levels of the past three years where approximately 1,000 tons of net purchases were made annually.
The WGC also highlights that central banks often refer to gold’s performance during times of crisis as a reason to buy. This suggests that demand from this sector will continue to be high throughout the year, helping to offset any potential slowdown in consumer demand due to elevated gold prices and slowing economic growth.