Gold’s supply and demand in Q4 2023

In the first part of our Q4 Gold Report, we reviewed how the gold price fared and touched upon other asset classes, as well as explored significant macro factors, including bond yields, the US Dollar and inflation expectations. In this second part of the Gold Report, we explore the various sources of supply and demand to further explain recent movements in the gold price. 

Demand for gold fell 1.4% in Q4 2023, compared to the previous quarter, to 1,114 tonnes as the metal’s price increased 11.6% in the quarter. Compared to Q4 2022, gold demand was 11.8% lower and, overall for the year, total demand was 5.3% lower compared to 2022.

The higher price of gold in the quarter was a deterrent to some segments of demand but surprisingly not jewellery, for which Q4 is typically a strong season. Although 50% of demand came from jewellery, its highest share of demand since Q4 2019, jewellery demand was 11.8% lower than Q4 2022. ETFs posted their seventh consecutive quarter of lower gold stocks, but other sources of retail investment were higher, increasing 6.2% on the quarter to 313 tonnes.

Central bank purchases were 35.1% lower than in Q3 2023 at 229 tonnes. This remains significantly above the long-term average (going back to 2010) of 139 tonnes but below the recent average where central banks have significantly increased their demand for reserves. Tech demand reached its highest since Q1 2022 at 81 tonnes, 7.1% higher quarter-on-quarter. 

Q4 is typically the strongest quarter in the calendar year for jewellery demand, and 2023 was no exception. This was despite gold hitting a new record high of $2,135¹ in December, though demand being 10.1% lower than in Q4 2022 does reflect some price sensitivity in the customer. A year-to-year comparison shows the jewellery demand for gold was 0.2% higher in 2023 than in 2022.

Breaking down demand by geography, India was the largest purchaser of gold for jewellery in Q4 2023 at 200 tonnes, an increase of 28.1% on the previous quarter driven by the wedding season and gifting for Diwali. In trying to correct for this seasonality, a comparison to Q4 2022 shows a 9.2% fall in Indian demand. For reference, the average gold price was 14.4% higher in Q4 2023 compared to Q4 2022. India overtook China as the largest purchaser of gold in the most recent quarter as China saw a quarter-on-quarter drop in jewellery demand for gold of 2.0% to 161 tonnes. Combined Indian and Chinese demand represented 64.8% of global demand in Q4 2023.

Central bank purchases of gold were 229 tonnes in the final quarter of 2023, 35.1% lower than in Q3 and 40.0% lower than in Q4 2022. From a longer-term perspective, this is still a strong result; summing all the gold purchases since 2010, more than a quarter of that was bought in the last two calendar years.

This build of reserves has continued to be centred in emerging markets; notably China added 225 tonnes to its gold reserves this year, its largest annual purchase since at least Deng Xiaoping began to open the Chinese economy in the late 1970s. Despite this, China remains in sixth place in country world rankings of gold reserves. Poland also had a record-breaking year for gold purchases as it continued its programme of bringing its reserves in line with the European average into Q4 2023.

Gold-backed ETFs reduced their stock of gold by another 2.5% in Q4 2023 as they again saw net outflows over the quarter despite gold delivering the strongest quarterly return since Q2 2020. Net outflows of gold ETFs coincide with the Fed tightening the Fed Funds rate; therefore, this trend ought to be watched given that the Fed has pivoted and is expected to cut rates in the coming months.

In terms of where those quarterly outflows originated from, there was again net redemptions in North American funds of 5 tonnes though this was set by activity in October as there were net purchases into quarter end. The heaviest selling of gold was by European ETFs, which sold a further 56 tonnes in the quarter. There were net purchases in Asia of 2 tonnes with the majority coming in the last month of the quarter.

Gold supply fell 3.1% quarter-on-quarter to 1,221 tonnes. In total, however, supply increased 4,899 tonnes for the year, meaning 2023 was the highest on record in terms of total supply.

The fall in quarterly supply was due to a quarterly drop in mined supply, which was chiefly due to strikes in Mexico affecting production. The record gold price encouraged an increase in recycled supply, which was up 8.3% quarter-on-quarter to 313 tonnes. Hedging took 22 tonnes out of total supply in the quarter as producers unsurprisingly preferred to take spot prices.