GOLD SWOT: Gold Demand Hit a Record Last Year and is Expected to Keep the Trend in 2024

Strengths

• The best performing precious metal for the week was gold, rising 0.86%. With the odds being roughly even that the Fed would start cutting interest rates at its next meeting in March, gold came out of the gate on Monday well bid. Initial jobless claims released on Thursday were largely as expected, further boosting the hope for rate cuts even though Jerome Powell stated Wednesday that there is probably not enough new data between now and March to give the Fed the confidence to start cutting. Friday’s blowout Change in Nonfarm Payrolls showed very strong growth in the job market, taking some of the shine off gold at the end of the week.

• Franco-Nevada Corp., one of the leading gold royalty and streaming companies, announced the rise of its quarterly dividend. The dividend, payable on March 28, 2024, was increased by 5.88% to USD 0.36 per share. The increase will be effective for the 2024 fiscal year and is the 17th consecutive annual increase made by the company, reports Simply Wall St. 

• According to Bloomberg, gold jewelry consumption in 2023 was 2,093 tons. The demand in India, the second biggest consumer, is expected to rebound to around 800-900 tons in the next two years after a slight decline in 2023 to 748 tons. This expected increase in demand is supported by rising incomes and evidence that despite the high prices, sales remained the same in the previous years. In China, the demand for gold jewelry is expected to remain stable.

Weaknesses

• The worst performing precious metal for the week was palladium, falling 1.08%, largely in line with all of the industrial metals which ended the week lower. Gold Fields Ltd. was cut to underperform on Friday and the share price dropped nearly 10% in value. Analyst Raj Ray cited potential negative read through from the Gruyere asset, which Gold Fields has a 50:50 JV with Gold Road, which reported a weaker-than-expected 2024 forecast. Ray noted the other Australian assets are all development intensive underground mines, thus the stock should not be trading above its peers on comparable financial metrics.

• According to a January 31 report from the World Gold Council (WGC), global gold ETFs saw a third consecutive annual outflow, losing 244t. The pace of outflows slowed markedly into year-end, the group explains, but October’s hefty outflows dominated the fourth quarter picture. On a positive note, annual jewelry consumption held steady at 2,093t, even in the very high gold price environment.

• According to Bloomberg and Swiss Federal Customs Administration data, Swiss gold shipments decreased to 107.9 tons in December from 109.7 tons in November. At the same time, gold exports to India fell 51% to 8.1 tons, and to Hong Kong they fell 67% to 6.5 tons. Sales to Turkey decreased 8% to 8.1 tons, and Swiss gold imports dropped 15% to 143.7 tons. 

Opportunities

• According to data from the World Gold Council (WGC) and Bloomberg, gold demand hit a record last year and is expected to keep the trend in 2024. The overall consumption of the yellow metal increased by about 3% to 4,899 tons last year, backed by solid demand in the opaque over-the-counter market (OTC) and buying by central banks worldwide, especially in China and Poland. The annual demand in the OTC market hit 753% in 2023, the highest since 2011, according to WGC data.

• Despite last week’s first weekly fall, following a month of gains, gold is back in the spotlight with the sudden uptick in concerns over banks’ balance sheets, as they are facing $560 billion in commercial real estate maturities coming due by the end of 2025. The wakeup call came from New York Community Bancorp and Japan’s Aozora Bank Ltd.  Bancorp slashed its dividend and will stockpile reserves sending the share price down 38% for the day, a 23-year low. Aozora warned investors on U.S. commercial property losses, and its share price dropped 20%. Office properties are the most underwater, as reported by Bloomberg.  

• The Chinese Lunar New Year kicks off next weekend, and many luxury brands are already crafting themed products to celebrate, reports Bloomberg, many of which incorporate gold. For example, Louis Vuitton’s red lacquered box has trunk-style gold corners and is topped with a hard carved wooden dragon. Then there is John Hardy’s Naga collection, featuring jewelry with dragonheads. The Naga Lariat, Bloomberg explains, is crafted from 14K gold and White diamond accents.

Threats

• Pandora, the world’s largest jeweler by amount of products sold, has stopped using mined silver and gold, reports Reuters, and now only manufacturers with recycled precious metals – which require less energy to produce. Using recycled, instead of newly mined, metals cuts Pandora's indirect CO2 emissions by around 58,000 tonnes annually, said Mads Twomey-Madsen, its senior vice president of communications and sustainability.

• The U.S. government will rescind the license awarded to Venezuela's state gold producer, issued in October 2023. This license was banned in 2019 to prevent lucrative sales that kept the military loyal to the Maduro government. The measure is the result of Maduro's government’s action to prohibit the participation of the opposition's leading candidate, Maria Corina Machado, from participating in elections this year. The U.S. government is also considering additional measures, according to Bloomberg.

• According to the latest World Gold Council report, in the fourth quarter of 2023, central banks bought 229 metric tons of gold, representing a decrease when compared to the 382 tons in the year-ago quarter in 2022. Gold buying over the entire year declined by about 4%, from 1,082 tons in 2022 to 1,037 tons in 2023. Even if there is a slight decrease, this could impact buyers’ perceptions, considering that the gold consumer behavior of global central banks has a significant influence on the reaction of the gold market worldwide. 

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