Gold demand to hit record high in 2023 due to geopolitical risks and weakening China

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The biggest drivers of gold demand in 2023 will be the Russia-Ukraine war, the Israel-Hamas conflict, and the slowdown in the Chinese economy, and these could continue to push up gold prices until 2024, says WGC central banker. Xiaokai Fan said. .

Prices reached an all-time high of $2,100 an ounce in December as central banks and retail investors increased their gold purchases, with central bank purchases exceeding 1,000 tonnes for the second year in a row.

“2023 was the second-highest year for central bank gold purchases on record, and it was just a hair’s breadth away from the all-time high in 2022,” Huang said in a Zoom interview with CNBC.

According to the report, the People’s Bank of China made the largest purchase of 225 tons of gold last year, increasing its inventory to 2,235 tons.

“If you personally see your central bank buying a lot of gold, you are at least becoming more aware of gold…or maybe your central bank is buying a lot of gold. “You might be influenced by the fact that you’re buying gold, and considering the value of gold, you might also consider gold as a personal investment,” Huang said.

China’s real estate crisis is also driving more investors towards gold, he stressed.

China Evergrande, once one of China’s biggest real estate developers, has been ordered into liquidation by a Hong Kong court after failing to reach an 11th-hour restructuring agreement over the weekend.

Investment in the country’s gold bars and coins has increased by 28% since 2023, reaching 280 tonnes last year.

“Chinese investors are concerned about the future of other asset classes and are turning to gold as a way to protect their investment portfolios,” Huang said. In fact, gold is doing very well on a RMB basis and compared to other asset classes in China. ”

According to data from the World Gold Council, China will overtake India as the world’s largest buyer of gold jewelery in 2023.

People in China bought 603 tons of gold jewelry in 2023, an increase of 10% from the previous year.

This is mainly due to an increase in weddings that have been postponed after the economy reopens from the pandemic in late 2022, Huang noted.

He said there may be more gold purchases as the Lunar New Year approaches, and elaborated that according to Asian folklore, the upcoming Year of the Dragon is a good year to have children.

“In general, more babies [cause] “This will have a positive impact on gold demand,” Huang said, but warned that China’s gold demand may decline after the first quarter of 2024.

Apart from rising gold prices and slowing economic growth, this year is not predicted to be a very lucky year for marriages, the WGC report said. In India, too, there were only 16 auspicious weddings in the first quarter, compared to 28 last year.

Huang said due to the country’s price-sensitive market, gold jewelery purchases in 2023 were down 6% year-on-year to 562 tonnes.

The WGC said this year’s gold purchases were unlikely to reach 2023 levels, but lower inflation could avoid a significant drop in demand.

“If inflation falls significantly, consumers could start to feel substantially better off, which could alleviate some of the decline in demand.”

U.S. inflation in 2023 will be 3.3% on a 12-month basis, still above the Fed’s 2% target, and Fed Chairman Jerome Powell said Wednesday the Fed is unlikely to cut interest rates in March. said.

The announcement sent gold prices down 3% from $2,064 during Thursday morning Asian trading hours.

“During periods of strong hyperinflation, gold does very well. However, during periods of moderate inflation, gold can go either way. It may also be determined by other factors. “There is,” Huang said.