After 2020’s historically low global nominal interest rates, including a benchmark rate range of 0% to 0.25% in the United States to help counteract the negative economic impact of the Covid-19 pandemic, benchmark interest rates were raised substantially during 2022 and 2023 to manage inflation. Rising benchmark interest rates in early 2023 ultimately led to a reduction in inflation from long-term highs. As expectations for a peak in benchmark rates for 2023 took hold and expectations for benchmark rate cuts in 2024 grew, the value of the trade-weighted US dollar continued to moderate. When combined with geopolitical tensions, including the conflict in the Middle East and the continued invasion of Ukraine by Russia, the gold price traded at an all- time high of $2,135/oz in December 2023.
Strong demand
Demand for gold remained strong in 2023 with the World Gold Council reporting total demand of 4,899 tonnes, up 3% from the prior year, reflecting continued elevated levels of net purchases from global central banks tempered by outflows in global gold ETFs.
The World Gold Council reported that collective ETF gold holdings decreased by 244 tonnes during the year, representing the largest level of annual outflows since 2013. Demand in gold-backed ETFs, bar and coin declined by a combined 15% in 2023 but this was more than offset by other investment demand, including over-the-counter transactions.
Central bank purchases continued at an impressive pace during 2023, exceeding 1,000 tonnes for the second consecutive year. 2022 and 2023 represented the two highest levels of net purchases in over 50 years. The World Gold Council estimates that global central banks added 1,037 tonnes to their reserves during 2023, the 14th consecutive year of net purchases. The People’s Bank of China was the largest single buyer of gold during the year, with reported purchases of 225 tonnes representing the country’s highest annual purchases since at least 1977.
During the worst impacts of the Covid-19 pandemic, some central banks looked to their holdings of gold as a source of liquidity in difficult economic times. Their ability to do so provides a strong statement as to why gold is a valuable reserve asset and a key source of reserve diversification. The strong level of purchases in the following years shows that central banks view gold positively and as a long-term store of value.
Global jewellery consumption increased modestly in 2023, with the increase being led by 10% growth in Chinese consumption after the removal of Covid-19 restrictions in the country. This was partially offset by a reduction in Indian consumption that was impacted by a weakening of the local currency. As a result of these divergent trends, China regained the mantle as the country with the highest level of gold jewellery consumption. On a combined basis, India and China represented approximately 57% of global gold jewellery demand in 2023, up slightly from 56% in the prior year.
Gold demand for technology, electronics and other industrial uses fell by 3% in 2023 due in part to a challenging economic environment.
Recycled gold increase
The overall supply of gold in 2023 increased by 3% due mainly to an increase in recycled gold.
The supply of recycled gold increased by 9% but was still approximately 30% lower than the all-time high reached in 2009, despite record high gold prices.
Global mine production rose modestly for the third year in a row but still remained slightly below the peak reached in 2018. This highlights the mining industry’s difficulty in increasing production despite the fourth straight year of record high annual average prices. As gold prices have increased and capital has become more readily available in recent years, there is continued evidence of increased spending on exploration. However, 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 remains a challenge.