Central banks once again stood out last year as key movers of the gold price, according to the latest Gold Focus report out from Metals Focus. Net official sector buying was exceptionally strong for the second consecutive year, the UK-based precious metals consultancy confirmed.
Gross buying was in fact higher than in 2022 and, had it not been for Turkey’s sales around the time of that country’s election, there could have been a new all-time high for net purchases. This was instrumental in underpinning gold prices during times when investors were quite negative towards the metal.
“In our view, it has also been key to proliferating bullish sentiment in the market more recently, therefore having a far more profound impact on prices than the ounces it has absorbed,” said Neil Meader, Director of Gold and Silver at Metals Focus.
Central banks remain keen on gold
Net official sector purchases exceeded 1,000t in 2023, for only the second time on record. Ongoing dedollarisation and diversification kept official sector purchases elevated throughout last year, while there was also a jump in gross sales, led by Turkey. Those themes underpinning official sector demand in 2022-23 should continue this year, keeping net purchases elevated at a forecast 1,000t in 2024.
Gold’s other fundamentals also fared well last year, particularly considering its price averaged 8% more than in 2022. This is yet more marked given weaker currencies in a number of key physical markets, which amplified that dollar price increase and that some also experienced elevated physical premiums.
Jewellery demand was flat y/y and recycling was up by just 9% and still around one-quarter lower than its 2012 peak. Mine production, meanwhile, saw a marginal increase last year.
Gold has performed exceptionally well so far in 2024. It has enjoyed a trough-to-peak rally of over 23% and that was in only just over three months. In the process, it has made an all-time-high of $2,450.
Gold market is “decisively bullish”
“We expect that most of these [factors] will remain in place for the foreseeable future,” said Meader. “Crucially, we note that the market consensus has become decisively bullish for the metal in recent months. As such, although there are downside risks in the near-term, we are confident that prices will see a new record before the end of the year and average $2,250 for the full year, up by 16% y/y and marking another annual average record.”
Despite the strong fundamental background supporting gold, short-term price action tends to be bearish. Gold trend indicators no longer agree on the bullish trend amid the recent price correction. However, this short-term negative bias may weaken due to strong Asian demand for currency hedging purposes, especially against the US dollar.
“I see gold as strongly bullish in the medium and long term, as evidenced by trading activity in Chinese gold exchange-traded funds resuming at a faster pace since the buying activity that lifted prices to all-time highs in April,” said Rania Gule, a market analyst at XS.com. “In my opinion, precious metals have recently and strongly turned into a means of hedging against currency depreciation, as renewed pressures in Asia indicate emerging signs of significant buying activity in the medium term.”