Gold Hit A Record Last Year, And It May Be Just Getting Shined Up

Gold Hit A Record Last Year, And It May Be Just Getting Shined Up
Reda Farran, CFA

28 days ago2 mins

Mentioned in story

Gold may have lost a bit of its luster among central banks last year, but its total demand was shinier than ever. And that just might continue.

Total global demand for the yellow metal rose by 3% in 2023 to hit a record 4,899 metric tons, according to the World Gold Council. That figure includes net buying from central banks (blue bars), plus demand from jewelry makers, investors, industrial manufacturers, and over-the-counter purchases – an opaque source of buying by the super-rich, sovereign wealth funds, and futures market speculators.

All that buying helped send the price of gold 13% higher last year, to a record in December, despite significantly higher bond yields. And that’s pretty striking: investors tend to favor bonds over gold when yields look nice, for the simple fact that gold doesn’t generate income and bonds do. That’s exactly what happened last year, with investor demand for gold plunging to a ten-year low of 945 tons.

Offsetting that weakness was some blistering central bank buying and strong jewelry demand in China. Central banks, on balance, bought 1,037 tons of the metal – just 45 tons shy of the record set in 2022. Gold’s new allure among central banks in recent years comes as countries seek to hedge against inflation and diversify their reserves to reduce their exposure to the US dollar. China’s central bank made the biggest move last year, buying 225 tons of gold.

Chinese consumers have also taken a shine to gold of late, snapping it up as a potentially safe store of wealth as the country faces a property crisis, a weakened yuan, a drop in bond yields, and a slumping stock market. In China, investment demand for gold increased by 28% last year to 280 tons, while jewelry purchases increased by 10% to 630 tons.

And like the perfect pair of gold earrings, this demand isn’t likely to fall out of fashion this year, the World Gold Council says. It sees total global demand for the shiny metal climbing again in 2024, with geopolitical tensions on the rise and the Federal Reserve expected to reduce interest rates. Gold’s got a reputation as a safe-haven asset, after all, and it has particular appeal when interest rates start to come down, benefiting from lower bond yields and a weaker US dollar. This metal may not seem like a bargain right now, but keeping some of its bling in your portfolio might not be a bad call. A good, cost-effective way to do that is via the abrdn Physical Gold Shares ETF (ticker: SGOL; expense ratio: 0.17%).

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