Gold Market Overview

The gold price had a strong and sustained positive performance in 2019 on the back of increasing investor interest due to geopolitical uncertainties, reductions in interest rates in large economies, and a search for investment alternatives as many global equity markets traded at or near all-time highs. The extension of these macroeconomic themes into 2020 continues to provide a backdrop for robust gold price performance.

The average price of gold in 2019 was $1,393/oz, a 10% increase over the $1,268/oz average in 2018. $1,393/oz was the highest annual average price since 2013 and represented the fourth straight year of average price increases.

The gold price reached a six-year high of $1,557/oz in September 2019 — a price that has been exceeded in early 2020. Gold prices ended 2019 at $1,515/oz, representing an increase of 18% since the end of 2018.

A reduction in global interest rates, including three 25-basis-point benchmark rate cuts by the US Federal Reserve in 2019 and a return to negative 10-year yields in parts of Europe, helped to increase the gold price by reducing the opportunity cost of holding gold. At the beginning of 2019, the market expectation was for US benchmark rates to increase over the course of the year, so the resulting series of rate cuts had an especially positive impact on gold prices despite a US dollar that remained strong.

An increase in geopolitical tensions, including an escalation of hostilities between the US and Iran; trade disputes, including tariffs put in place by the US and China; and economic uncertainties, including concerns over the pace of growth in China and Europe, have also seen buyers turn to gold as a safe haven and store of value.

Investor demand for gold was very strong in 2019, with the World Gold Council reporting that collective ETF gold holdings grew by over 400 tonnes during the year and reached an all-time high of approximately 2,900 tonnes in the fourth quarter of 2019. COMEX net longs also reached an all-time high during 2019, a significant reversal of sentiment from the net short position that existed in late 2018.

While there was strong appetite for gold from the investment community, overall demand for gold fell modestly in 2019, as rising prices in non-US currencies, including the Euro, Pound sterling, Japanese yen, Indian rupee and Chinese yuan, reduced consumer demand for jewelry, bars and coins. In particular, global jewelry demand was down 6% compared to 2018, with China and India — responsible for over half the world’s jewelry demand — down 7% and 9%, respectively. However, despite the decrease in the volume of jewelry demand, the overall amount spent on jewelry in US dollar terms actually increased due to the year-on-year rise in the gold price.

Gold demand for electronics and other industrial uses fell by a modest 2% in 2019 as trade tensions weighed on global demand and production. An increase in demand for 5G infrastructure could help to reverse this trend going forward. Central bank purchases of gold were once again substantial in 2019, totaling approximately 650 tonnes. This was a slight decrease of 1% year-on-year but 2019 still represented the second-largest year of net central bank purchases in the last 50 years, with Turkey, Russia, China, and Poland leading the way. Central banks have now been net purchasers of gold for 10 straight years as they look to it as a source of reserve diversification.

Overall supply of gold in 2019 increased by 2%, mainly attributable to a rise in recycled gold. Global mine production was down by 1%, representing the first annual decline in mine supply since 2008 and potentially signaling that the mining industry has reached peak gold production for the foreseeable future. As gold prices have increased and capital has become more readily available in recent years, there is evidence of increased spending on exploration by mining companies, but the costs of mine construction and the time required for environmental studies and permitting activities before reaching the production stage means that a return to sustained global production growth could be delayed.

The supply of recycled gold, which historically has correlated positively with the gold price, increased by 11% in 2019 as rising prices inspired sellers to bring their holdings to the market.