Gold Demand Hits Record High, Poised for Further Surge in 2024

Gold demand achieved a historic high last year, and the World Gold Council anticipates it will surge again in 2024. The Federal Reserve’s inclination toward reducing interest rates, potentially bolstering prices, drives this trend.

The consumption in the previous year expanded by approximately 3% to 4,899 tons. Robust demand in the opaque over-the-counter market and sustained central-bank acquisitions fueled this growth, marking the highest total figure since 2010, according to the WGC’s annual report.

In an interview, Joseph Cavatoni, the chief market strategist at the WGC, expressed the current landscape is conducive for emerging central banks to continue being net buyers. The council foresees a compelling case for record acquisitions by countries like China and Poland.

Diverse Components of Gold Consumption

The comprehensive demand figure encompasses bullion for investment, jewelry, coins, central-bank buying, exchange-traded funds, and over-the-counter activity, noted Cavatoni. Economic and political uncertainty, geopolitical tensions, and expectations of a policy shift by the US central bank drove a 13% rally in the precious metal last year, reaching a record in early December. Investors typically turn to gold in a rate-cutting cycle, benefiting from lower Treasury yields and a weaker dollar.

World Gold Council data revealed that annual demand growth in the over-the-counter market surged by 753% last year, the highest since at least 2011. Cavatoni anticipates investors will continue accumulating gold at an accelerated pace this year, primarily influenced by the Federal Reserve’s anticipated shift toward easing.

According to the WGC report, central bank acquisitions maintained a rapid pace, with annual net purchases reaching 1,037 tons last year, only 45 tons shy of the 2022 record. The council expects central bank buying to exceed 500 tons this year.

Challenges in Jewelry Demand

The anticipated surge in over-the-counter activity and central bank acquisitions is set to counterbalance weaknesses in other areas. According to Cavatoni, exchange-traded funds predominantly offer substantial upside potential for prices, with a suggested target of $2,200 per ounce or higher. December saw spot gold peaking at $2,135.39. Despite this, the jewelry sector may encounter challenges this year due to economic slowdowns and elevated prices, as indicated by the WGC, which reported consumption from this sector at 2,093 tons in 2023.

India, the second-largest consumer of gold, emerges as a bright spot, with demand expected to rebound to between 800 and 900 tons in the next two years after sliding to 748 tons in 2023.

P.R. Somasundaram, regional chief executive officer at the council in India, attributes this rebound to increased incomes accompanying economic growth.

In China, stability is anticipated in the demand for gold jewelry as consumers aim to preserve value in the safe-haven asset against a weakening currency and an increasingly uncertain economic outlook. However, the WGC expects a growth slowdown in the country, potentially limiting households’ budgets for purchasing bars, coins, and jewelry.