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

Gold demand hit record highs in 2023 as persistent geopolitical tensions and weakness in China’s economy pushed investors toward the safe haven asset, the World Gold Council said in report.

Total gold transactions stood at 4,899 tons last year compared with 4,741 tons in 2022, inclusive of over the counter deals as well as stock flows that reflect changes to inventories on commodity exchanges.

Unlike trading conducted by an exchange, OTC transactions take place directly between two parties.

The biggest drivers of gold demand in 2023 were the Russia-Ukraine war and Israel-Hamas conflict as well as the slowdown in China’s economy — and these could continue boosting the metal’s prices well into 2024, said Shaokai Fan, global head of central banks at WGC. 

Prices hit an all-time high of $2,100 an ounce in December as central banks as well as retail investors increased purchases of gold — central bank purchases have exceeded 1,000 tons for two consecutive years. 

“2023 was the second highest year in history of central bank gold buying, within a hair’s breadth of the record high in 2022,” Fan told CNBC in a Zoom interview. 

The report showed that the People’s Bank of China was the biggest buyer of gold at 225 tons last year, bumping up its stock to 2,235 tons.

“If you as an individual will see that your own central bank is buying large amounts of gold, you’re at the very least more aware of gold … Or maybe you’re even influenced by the fact that your central bank is buying a lot of gold, you may think of gold as a personal investment as well,”  Fan said. 

China’s real estate crisis has also pushed more investors toward gold, he highlighted.

China Evergrande, once among the country’s largest property developers, was ordered by a Hong Kong court to liquidate after the company failed to reach an 11th-hour deal over the weekend to restructure.

The country’s investments in gold bars and coins rose 28% from 2023 and stood at 280 tons last year.

“Chinese investors are worried about the future of other asset classes, and they’re turning to gold as a way to protect their investment portfolios,” Fan said. Gold has actually done very well in renminbi terms, and very well compared to other asset classes in China.” 

Data from the World Gold Council showed that China dethroned India as the world’s largest gold jewelry buyer in 2023. 

People in China bought 603 tons of gold Jewelry in 2023, a 10% increase from the previous year. 

This was largely due to a rise in weddings that were postponed after the economy reopened from the pandemic in late 2022, Fan noted. 

He elaborated that gold purchases could rise further as the Lunar New Year approaches, and according to Asian folklore, the upcoming Year of the Dragon is a good year to have children. 

“More babies will generally [cause] a positive impact on gold demand,” Fan said, but warned that China’s gold demand could fall after the first quarter of 2024. 

Apart from rising gold prices and a slowdown in economic growth, this year is predicted to be a less auspicious year for marriages, the WGC report said. India too will have just 16 auspicious wedding dates in the first quarter, compared with 28 last year.

Gold Jewelry purchases fell by 6% in 2023 to 562 tons from the previous year due to the country’s price sensitive market, Fan said.

Gold purchases this year are unlikely to meet 2023 levels, but a fall in inflation could prevent a drastic drop in demand, WGC said. 

“Should inflation drop significantly consumers might start to feel wealthier in real terms, which could mitigate some of the drop in demand.” 

Inflation in the U.S. came in at 3.3% on a 12-month basis in 2023, still above the Federal Reserve’s 2% target, 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 prices which stood at $2,064 during Asia’s Thursday morning trading session.

“During periods of persistent strong hyperinflation, gold does very well. But during moderate inflationary periods, gold can go either way. It might be determined by other factors as well,” Fan said.