Gold demand is poised to reach unprecedented levels due to increased central bank purchases - World Gold Council

Central bank acquisitions and over-the-counter (OTC) purchases play a crucial role in driving up gold consumption, with the anticipated shift in policy by the Federal Reserve expected to further stimulate accumulation.

Gold demand reached a historic high last year and is anticipated to surge once more in 2024 as the US Federal Reserve edges towards interest rate reductions, potentially bolstering prices, as per the World Gold Council.

Total consumption rose by approximately 3% to 4,899 tons last year, propelled by robust activity in the opaque over-the-counter market and sustained purchases by central banks, according to the WGC's annual report. This marks the highest recorded figure since 2010.

Joseph Cavatoni, Chief Market Strategist at the WGC, noted in an interview that the current environment is conducive for emerging central banks to continue increasing their gold reserves. The council foresees robust purchasing by countries such as China and Poland.

Watch Peter Schiff Speak on The Value of Gold:

The comprehensive demand metric encompasses various sectors including investment bullion, jewelry, coins, central bank acquisitions, exchange-traded funds, and over-the-counter transactions. In the latter market, participants such as sovereign funds, high net-worth individuals, and hedge funds invest in gold bars.

Driven by economic and political uncertainties, geopolitical tensions, and expectations of Fed policy easing, the precious metal rallied 13% last year, reaching a record high in early December. Investors typically seek gold during rate-cutting cycles due to its benefits from lower Treasury yields and a weaker dollar.

The Fed's stance will be revealed shortly, with policymakers set to announce the outcome of their first meeting this year. While no changes in borrowing costs are expected, their statement, along with Chair Jerome Powell's press conference, will provide insights into the future outlook.

Annual demand growth in the OTC market surged by 753% last year, the highest since at least 2011, according to WGC data. Investors are projected to continue accumulating gold rapidly this year, largely influenced by the anticipated pivot towards easing by the Federal Reserve.

Central bank acquisitions maintained a rapid pace, with annual net purchases totaling 1,037 tons last year, just 45 tons below the record set in 2022, the WGC reported. It anticipates central bank acquisitions to exceed 500 tons this year.

The expected surge in OTC transactions, coupled with central bank acquisitions, will serve as a significant counterbalance to softness observed elsewhere, particularly in exchange-traded funds, potentially driving prices higher. Cavatoni suggests a case for prices reaching $2,200 an ounce or more.

Jewelry demand might face challenges this year due to economic slowdowns and elevated prices, with consumption from this sector estimated at 2,093 tons in 2023, according to the WGC. However, India's demand is expected to rebound to between 800 and 900 tons in the next two years, supported by growing incomes as the economy expands.

In China, demand for gold jewelry is anticipated to remain stable as consumers seek to preserve value amidst a weakening currency and uncertain economic outlook. Nonetheless, a slowdown in the country's growth could constrain households' budgets for purchasing bars, coins, and jewelry.

Central Banks are Buying Gold, Maybe You Should Too...