According to the WGC’s full-year report, overall gold consumption increased by approximately 3%, totaling a staggering 4,899 tons in the past year. This growth was bolstered by robust demand in the opaque over-the-counter (OTC) market and continued central bank acquisitions. This figure represents the highest recorded gold consumption since 2010.
Joseph Cavatoni, Chief Market Strategist at the WGC, emphasized the favorable environment for emerging central banks to remain net buyers of gold. He pointed out that countries such as China and Poland are well-positioned to set new records in gold buying.
The comprehensive demand figure encompasses bullion for investment, jewelry, coins, central bank acquisitions, exchange-traded funds (ETFs), and OTC trading. In the OTC market, various participants, including sovereign funds, high-net-worth individuals, and hedge funds, invest in gold bars, contributing to the surge in demand.
Gold experienced a remarkable rally in 2023, with a 13% increase in its value, reaching a historic peak in early December. This surge was driven by economic and political uncertainties, geopolitical tensions, and anticipation of the Federal Reserve’s policy shift towards easing after a series of interest rate hikes to combat inflation. Historically, investors turn to gold during rate-cutting cycles, as it benefits from lower Treasury yields and a weaker US dollar.
As investors eagerly await insights into the Federal Reserve’s stance, expected within hours, gold’s prospects remain closely tied to the central bank’s decision. While no changes in borrowing costs are anticipated, the statements and remarks from Chair Jerome Powell’s media conference are expected to offer valuable clues about the future direction of monetary policy.
According to WGC data, annual demand growth in the OTC market skyrocketed by 753% in 2023, the highest level since at least 2011. Investors are projected to continue accumulating gold at an accelerated pace in 2024, primarily driven by the Federal Reserve’s anticipated shift towards easing, as per Cavatoni’s assessment.
Central banks maintained a rapid pace of gold purchases, with annual net acquisitions amounting to 1,037 tons last year, falling just 45 tons short of the record established in 2022, according to the WGC report. The council anticipates that central bank purchases will exceed 500 tons this year.
The anticipated surge in OTC trading and central bank acquisitions will serve as a vital counterbalance to the relative softness observed in other sectors, particularly ETFs. These factors are expected to exert upward pressure on gold prices, with a strong case for reaching $2,200 an ounce or higher, as suggested by Cavatoni.
Spot gold, which was recently trading near $2,036 per ounce, reached its zenith at $2,135.39 in December 2023. While the overall gold demand outlook appears promising, the jewelry sector may face challenges in the coming year. Economic slowdowns and elevated gold prices are expected to impact jewelry demand, with the WGC estimating consumption from this sector at 2,093 tons in 2023.
A notable exception could be India, the world’s second-largest gold consumer, where demand is poised for a rebound. After declining to 748 tons in 2023, the Asian nation is expected to witness gold demand between 800 and 900 tons over the next two years. P.R. Somasundaram, Regional Chief Executive Officer at the WGC in India, attributes this resurgence to rising incomes as the nation’s economy continues to grow. Despite substantial price increases in recent years, gold sales have remained stable.
In contrast, China’s demand for gold jewelry is predicted to remain steady as consumers seek to safeguard their wealth against a weakening currency and growing economic uncertainties. However, a potential slowdown in China’s economic growth could constrain households’ budgets for purchasing gold bars, coins, and jewelry, according to the WGC’s analysis.
As the global economy navigates a complex landscape, gold’s enduring allure as a safe-haven asset continues to fuel its demand and support its price trajectory. Experts and investors alike will be closely monitoring developments in the coming months, particularly those related to central bank policies, to gain further insights into gold’s performance in 2024.
