Gold demand hit record highs in 2023 amid geopolitical dangers, China weakness

Gold purchases from central banks led to final yr’s surge, with purchases exceeding 1,000 tons for 2 consecutive years.

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Gold demand hit record highs in 2023 as persistent geopolitical tensions and weakness in China’s economic system pushed buyers towards the secure haven asset, the World Gold Council mentioned in report.

Total gold transactions stood at 4,899 tons final yr in contrast with 4,741 tons in 2022, inclusive of over-the-counter offers in addition to inventory flows that replicate modifications to inventories on commodity exchanges.

Unlike buying and selling carried out by an change, OTC transactions happen immediately between two events.

The largest drivers of gold demand in 2023 have been the Russia-Ukraine struggle and Israel-Hamas battle in addition to the slowdown in China’s economic system — and these might proceed boosting the metallic’s costs nicely into 2024, mentioned Shaokai Fan, head of central banks at WGC. 

Prices hit an all-time high of $2,100 an oz in December as central banks in addition to retail buyers elevated purchases of gold — central financial institution purchases have exceeded 1,000 tons for 2 consecutive years. 

“2023 was the second highest yr in historical past of central financial institution gold shopping for, inside a hair’s breadth of the record excessive in 2022,” Fan informed CNBC in a Zoom interview. 

The report confirmed that the People’s Bank of China was the largest purchaser of gold at 225 tons final yr, bumping up its inventory to 2,235 tons.

“If you as a person will see that your personal central financial institution is shopping for giant quantities of gold, you are on the very least extra conscious of gold … Or perhaps you are even influenced by the truth that your central financial institution is shopping for loads of gold, chances are you’ll consider gold as a private funding as nicely,”  Fan mentioned. 

China’s actual property disaster has additionally pushed extra buyers towards gold, he highlighted.

China Evergrande, as soon as among the many nation’s largest property builders, was ordered by a Hong Kong court to liquidate after the corporate failed to achieve an Eleventh-hour deal over the weekend to restructure.

The nation’s investments in gold bars and cash rose 28% from 2023 and stood at 280 tons final yr.

“Chinese buyers are frightened about the way forward for different asset courses, they usually’re turning to gold as a solution to shield their funding portfolios,” Fan mentioned. Gold has truly executed very nicely in renminbi phrases, and really nicely in comparison with different asset courses in China.” 

Gold jewellery purchases

Data from the World Gold Council confirmed that China dethroned India because the world’s largest gold jewellery purchaser in 2023. 

People in China purchased 603 tons of gold Jewelry in 2023, a ten% enhance from the earlier yr. 

This was largely resulting from an increase in weddings that have been postponed after the economic system reopened from the pandemic in late 2022, Fan famous. 

HUZHOU, CHINA – DECEMBER 04: An worker reveals gold bracelets at a gold jewellery retailer on December 4, 2023 in Huzhou, Zhejiang Province of China. (Photo by Ni Lifang/VCG by way of Getty Images)

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He elaborated that gold purchases might rise additional because the Lunar New Year approaches, and in response to Asian folklore, the upcoming Year of the Dragon is an effective yr to have kids. 

“More infants will typically [cause] a constructive affect on gold demand,” Fan mentioned, however warned that China’s gold demand might fall after the primary quarter of 2024. 

Apart from rising gold costs and a slowdown in financial development, this yr is predicted to be a much less auspicious yr for marriages, the WGC report mentioned. India too could have simply 16 auspicious marriage ceremony dates in the primary quarter, in contrast with 28 final yr.

Gold Jewelry purchases fell by 6% in 2023 to 562 tons from the earlier yr because of the nation’s worth delicate market, Fan mentioned.

2024 outlook 

Gold purchases this yr are unlikely to satisfy 2023 ranges, however a fall in inflation might forestall a drastic drop in demand, WGC mentioned. 

“Should inflation drop considerably shoppers may begin to really feel wealthier in actual phrases, which might mitigate a few of the drop in demand.” 

Inflation in the U.S. got here in at 3.3% on a 12-month foundation in 2023, nonetheless above the Federal Reserve’s 2% goal, with Fed Chairman Jerome Powell saying Wednesday that the U.S. Federal Reserve was unlikely to cut interest rates in March.

The announcement triggered a 3% fall in gold costs which stood at $2,064 throughout Asia’s Thursday morning buying and selling session.

“During durations of persistent sturdy hyperinflation, gold does very nicely. But throughout average inflationary durations, gold can go both manner. It is likely to be decided by different components as nicely,” Fan mentioned.

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