The World Gold Council (WGC) has been publishing “Gold Demand Trends” (GDT) for 30 years. In this publication the industry organisation reports extensively on developments in the trade of what is the most important precious metal of them all. It provides the latest data, goes into the key demand drivers and the situation in the mining sector and offers an outlook. “Over the past three decades the gold market has undergone extraordinary change,” say the authors in the anniversary issue of the GFT. In particular, the business is now spread much more widely, while in mining production has become more diverse and geographically dispersed. In the 1990s, the demand side was predominantly driven by the purchase of jewellery. Although the jewellery segment still plays a very important role, the sale of bars and coins has increased markedly. Furthermore, central banks have been adding more gold to their inventories since the start of the millennium in order to diversify their currency reserves. At the same time, physically-backed investment products (ETFs, ETPs) have become established buyers.
Overall the market has grown enormously since the WGC began its quarterly analyses. In 1992 some 2,270 tonnes of the yellow metal were mined worldwide, whereas last year global mine production came to over 3,600 tonnes. An additional 1,144 or so tonnes were obtained from recycling. Supply was thus only just able to keep up with the sharp increase in the volumes purchased. According to the WGC, demand for gold in 2022 was higher than it has been in more than a decade, with demand rising by almost a fifth compared with the year before. One driver was the investment segment, where demand for bars and coins climbed 2% to nearly 1,107 tonnes. Investors use gold in this form as a hedge against high inflation and an extremely tense geopolitical climate. “In contrast gold ETF investors reduced their holdings, especially in the second half,” the WGC explains. As reasons the experts cite the opportunity costs for this non-interest-bearing asset resulting from the rigorous increases in interest rates by central banks and a rising US dollar.
On the subject of central banks, in 2022 these institutions bought gold to an unprecedented extent, stocking up their treasuries by 1,136 tonnes in total. “Geopolitical uncertainty and high inflation were highlighted as key reasons for holding gold,” the WGC adds. Central banks have now been net buyers of the precious metal for 13 years in a row. The People’s Bank of China (PBoC) has bolstered its reserves for the first time since 2019. Meanwhile, the Turkish central bank secured the largest amount, its gold holdings climbing 148 tonnes last year to reach 542 tonnes. “Looking ahead, we see little reason to doubt that central banks will remain positive towards gold and continue to be net purchasers in 2023,” the experts reckon.
While little has changed regarding the central arguments for exposure to the crisis currency – tense geopolitics and rampant inflation – a new problem cropped up in the middle of March when Silicon Valley Bank (SVB) in the USA collapsed, awakening bad memories of the financial crisis. The shockwaves triggered by the closure of the US start-up financier were felt even in Switzerland, where long-suffering Credit Suisse lurched even further into crisis. In a rescue package supported by the Swiss National Bank (SNB) and the government, UBS acquired its competitor for CHFbn 3. In light of such a dramatic development, the run on gold is not surprising. The day after UBS made its offer for Credit Suisse, the troy ounce climbed above the USD 2,000 mark for the first time in around a year, demonstrating once again that as soon as nervousness on the market increases, the precious metal is more than ever in demand as a safe haven.
Source: World Gold Council, Reuters; as at: March 2023. Past performance is not a reliable indicator of future performance.