World Gold Council: Bullion is back

The demand for gold faced challenges in the fourth quarter of 2023, as reported by the World Gold Council, with a 5 per cent drop compared to 2022. This decline occurred despite robust central bank buying, the second highest on record, and a notable increase in demand from over-the-counter markets. John Reade, Market Strategist at the World Gold Council, discussed these trends and the outlook for 2024 in an exclusive interview with CNBC Africa. Reade highlighted the difficulty in comparing fourth-quarter demand in 2023 to the extraordinary levels seen in 2022, which was driven by record central bank buying. However, he emphasized that over a thousand tonnes of gold were still purchased by central banks in 2023, indicating a strong demand story, with OTC buying contributing to an overall increase in gold demand. Regarding the over-the-counter market, Reade explained that large quantities of gold, particularly in the form of big 12 and a half kilogram bars, were being acquired by wealthy individuals, companies, and funds as a means of diversification and protection against global economic shocks. This surge in demand from OTC markets mirrored the drivers behind the increasing central bank demand observed in recent years. Looking ahead to 2024, Reade predicted that OTC demand would remain strong, compensating for potential softness in other areas such as jewellery and technology demand, as well as outflows from exchange-traded funds. He indicated that central banks might also play a role in supporting overall gold demand. The outlook for gold prices would be influenced by factors such as interest rates, with a potential economic recession and subsequent interest rate cuts likely benefiting gold prices. On the supply side, Reade noted that mine production had plateaued in recent years, struggling to surpass the record levels seen in 2018. While expectations suggested a potential all-time high in mine production for 2024, the larger trend pointed towards stable production going forward, with the possibility of pressure on mine production in the medium term without significant new discoveries and developments. Despite record high gold prices, the recycling of old jewellery had not responded as expected, possibly due to low unemployment levels and consumer distress. In conclusion, Reade highlighted the challenges in gold demand and supply dynamics, with the over-the-counter market standing out as a strong contributor to overall demand in the face of potential softness in other sectors. The outlook for 2024 remained positive for OTC demand and central bank buying, while the future of gold prices hinged on economic developments and interest rate policies.