Member organisation the World Gold Council’s (WGC) latest ‘Gold Demand Trends’ report, released on January 31, indicates that yearly gold demand – excluding over-the-counter (OTC) market demand – fell to 4 448 t in 2023, down just 5% from what the council says was a notably strong 2022.

When factoring in demand from the OTC markets and other sources, total demand climbed to a new yearly record at 4 899 t.

Investment from this more “opaque” source of demand supported last year’s highest yearly average gold price on record, the council avers.

The central bank buying streak continued on from 2022 at a fast rate. Demand reached 1 037 t last year, making it the second highest on record, down just 45 t on the previous year.

In contrast to robust OTC and central bank demand, exchange-traded fund (ETF) outflows continued last year, losing 244 t in a third consecutive year of decline, with outflows in Europe dominating the picture.

In terms of bar and coin investment, demand was indicated to be subdued, down 3% as strength in some markets worked to offset weakness elsewhere.

European demand continued to plummet, down 59% year-on-year.

This decline was offset by a strong post-Covid-19 recovery in China, where yearly demand was up 28% to 280 t; combined with notable increases in India of 185 t, Turkey of 160 t and the US of 113 t.

The council highlights that the global jewellery market remained resilient amid record-high prices as demand inched up by 3 t year-on-year.

China was pivotal, recording a 17% increase in demand for gold, as it recovered from Covid-19 lockdowns, offsetting a 9% decrease in India.

Mine production was relatively flat last year, up 1% to 3 644 t, although this total fell just short of the 3 656 t record set in 2018.

After a strong first half, the council had expected the full 2023 to mark a new high for the global gold mining industry, but growth rates seen in the first two quarters were not replicated in the second half of the year.

Higher yearly output was, however, achieved in South Africa (+14 t, or 15%, year-on-year), where production recovered following protracted industrial action in 2022.

Recycling increased by 9%, which was lower than expected given the high gold price and drove total supply up 3%, the council points out.

“Unwavering demand from central banks has been supportive of gold demand again this year and helped offset weakness in other areas of the market, keeping 2023 demand well above the ten-year moving average.

“In addition to monetary policy, geopolitical uncertainty is often a key driver of gold demand and in 2024 we expect this to have a pronounced impact on the market. Ongoing conflicts, trade tensions and over 60 elections taking place around the world are likely to encourage investors to turn to gold for its proven track record as a safe haven asset,” says WGC senior markets analyst Louise Street.

“We know that central banks often cite gold’s performance in times of crisis as a reason to buy, which suggests demand from this sector will stay high this year and may help to offset a slowdown in consumer demand due to elevated gold prices and slowing economic growth,” she adds.

OUTLOOK
This year, the council expects total investment (including OTC) will be higher, but, akin to the market behaviour last year, much of this demand could come from the less visible OTC segment – which adds a level of uncertainty.

Early continued weakness in global gold ETFs is likely to experience a turnaround by mid-year, aided by anticipated rate cuts and continued geopolitical risk, the council points out.

European ETF outflows are likely to continue until longer-maturity interest rates are on a firm path lower, but here too, regional politics, alongside geopolitics, could have an impact.

Bar and coin demand is likely to stay healthy and in line with the ten-year average, as Chinese and Indian demand strength offsets European weakness, the council outlines.

Central banks are expected to keep buying at a considerably high rate, likely in excess of the pre-2022 annual average of about 500 t.

Jewellery demand could struggle to remain high, as economic slowdowns and high gold prices could present a challenge. This could, however, be mitigated by bullish consumers if inflation drops considerably.

Also, technology demand is expected to benefit from strong positive guidance on semiconductors and from artificial intelligence trends.

Total supply is slated to rise, with planned expansions and higher grades taking primary production to new highs, although a downside risk from disruptions remains a consistent factor.

Recycling is expected to rise, but not materially, as an economic recovery helped by stimulus measures in China could stymie overall recycling activity there, the council says.

Elsewhere, economic resilience and a possible geopolitical premium should help contain volumes, it points out.

However, this is precarious, as many economies are set to slow further. Also, the bar to recycle, given elevated geopolitical tensions, is likely higher even in the face of high prices, the council cautions.