1st February 2024  - Gary Mead  - in Markets, Gold

A blistering year

A blistering year

2023 was "another year of blistering central bank buying" of gold, says the World Gold Council (WGC) in its latest Gold Demand Trends report. At 1,037 tonnes not quite as blistering as 2022, but with just 45 tonnes less it almost matched the buying of 2022, which was a record year. There are different ways of measuring the gold price - the WGC prefers to use the London Bullion Market Association's (LBMA) afternoon price. On this basis it says the price at the end of 2023 was $2,078.4 per troy ounce, a "record high year-end close" and 15% higher than the year's start.

Global annual gold demand last year was put at 4,448 tonnes by the WGC, which was 5% lower than the previous year. But adding in the gold trade on the over-the-counter (OTC) market (as opposed simply to exchange-traded gold then total gold demand was "the highest on record at 4,899 tonnes". The figures are all the more telling given that jewelry consumption was steady year-on-year, exchange trade gold funds saw a third consecutive annual outflow (of 244 tonnes), bar and coin investment fell by 3%, and gold used in dentistry fell by 8% and in technology was down by 4%. On top of which the US Dollar was relatively strong in 2H until late 2023 against other major currencies such as the Euro, and US interest rates were relatively high, at 5.25-5.5%, the highest since early 2001. High interest rates generally reduce investment in gold, which has no yield. Very little in life is certain but the price of gold should go higher this year if central bankers start to feel relaxed about inflation and begin cutting interest rates. And given (as the chart shows) that some of the world's richer countries still have relatively little gold in their central bank reserves then there appears to be ample room for the central bank buying frenzy to continues this year.

Gold as a % of reserves in a selection of central banks

What next?

Of course the past is just that - as much use as yesterday's fast food wrapper. What matters is what will happen this year. Of that there can be no reliable guide and certainly no slam-dunk predictions. The WGC offers some thoughts about what's ahead for this year. It sees "elevated geopolitical risks" (which is no remarkable insight) as being "positive for gold". The year has started amid awful geopolitical events and there's no sign of them easing.

We need to remind ourselves whey we own gold in the first place. It is, for us, the most enduring form of money there is. That it goes up and down in terms of fiat currencies is obvious, inescapable, the price vagaries driven by the whims of buyers and sellers. But those who believe gold is money do not buy gold in the hope of making quick buck. We hold gold for a variety of reasons - mind you, a rise in price is always welcome - but primarily because our confidence in government handling of economic policy, our trust that 'they know what they are doing' has been badly, perhaps irrevocably, damaged. Whether it comes to preserving the purchasing power of our Dollars, Pounds, Euros or whatever, or waging eye-watering and possibly immoral conflicts, our governments have proved many times that they are not to be trusted. Ultimately that means they are indifferent to the depredations of inflation on our fiat money, so it only makes sense to try to obtain protection if possible. For centuries gold has been a shield against government insanities; Bitcoin has been created to achieve much the same purpose.

But Bitcoin (and other cryptocurrencies) have several problems, the most alarming being considerable volatility. Few of us are prepared to or able to tolerate price moves of several per cent a day. And there is always the risk of losing everything staked on a cryptocurrency. And with Glint there is an additional advantage - gold held in a Glint account can be used as money. So while the world seems to be going to hell in a hand cart, it is comforting to know there is security available.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.