World Gold Council: “Blistering Central Bank Buying” Fuels Strong Gold Demand

Total gold demand hit an all-time high in 2023, according to a recent report released by the World Gold Council.

Last week, the World Gold Council (WGC) released its Gold Demand Trends report, which tracks developments in the demand for and use of gold around the world. Excluding over-the-counter (OTC) trade, 2023 gold demand fell slightly from 2022 to just under 4,500 tonnes. With OTC demand accounted for, last year’s demand peaked at 4,899 tonnes, the highest figure ever recorded.

Investment in bars and coins varied across the world. While demand in Europe fell in 2022, investment demand in India, Turkey, and the United States increased by 185, 160, and 113 tonnes, respectively. The WGC also notes that 2023 saw little overall change in gold mine production and stable demand in the jewelry sector.

Also of note was gold’s record high price at year-end. At $2,078.4 per oz, gold finished the year 15% higher than it started. Its average price throughout 2023— $1,940.53 per oz— also broke records, exceeding 2022’s average price by 8%.

In a year of monetary tumult, central bankers themselves turned to gold, driving over 21% (1,037 tonnes) of 2023’s total demand and nearly setting a new demand record of their own. Central banks often hold a share of their foreign reserves in gold as a bulwark to economic and geopolitical instability. The Federal Reserve, for example, holds nearly 70% of its foreign reserves in gold.

Turkey’s central bank increased its share of foreign reserves held in gold by 0.73% in Q4 of last year, which is by far the largest increase of any country. This increase is not surprising, since Turkey’s economy has suffered a series of blows since 2020; recent changes in central bank leadership, high inflation, and a weakening currency all contribute to the uncertainty that higher gold reserves may relieve.

Louise Street, a senior analyst at WGC, explains why economic uncertainty is likely to persist this year in a press release associated with the report:

“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.”

Street’s prediction came only days before Jerome Powell, the chair of the Federal Reserve, announced that the Fed would hold off on interest rate cuts as it evaluates persistent inflation that still plagues the economy. Powell had previously signaled the possibility of rate cuts sometime this spring, leading the market consensus to expect rate cuts at the Fed’s March 2024 meeting. During last week’s Federal Open Market Committee meeting, however, Powell expressed doubts that the Fed will have tamed inflation enough to cut rates in March.

The reaction to Powell’s announcement is illustrative of gold’s hedge against uncertainty. While the stock market plummeted in response to the Fed’s hesitance, the spot price of gold climbed the following day to $2,054 per oz, almost surpassing its 30-day high price.

This resilience is likely what Louise Street has in mind when she predicts high gold demand for the rest of 2024:

“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.”

With the uncertainty of inflation, recessionary pressures, and political conflict around the world, gold may prove to be the best investment in 2024.