BullionVault Weekly Update
The wisdom of BullionVault users...
Monday, 18 December 2023
In the markets today...
For up-to-the-minute live spot gold and silver prices use the BullionVault chart
Gold $2342, Silver $29
from Adrian Ash
Director of Research, BullionVault
IT SEEMS like everyone says the price of gold will continue to rise in 2024...
...extending this year's new all-time highs as Western central banks start cutting interest rates, emerging-market central banks continue to buy record quantities of bullion, and geopolitical tensions worsen if not flip into outright conflict between major powers.
BullionVault users say the same. Only more so.
Investors responding to our latest survey predict, on average, that the gold price in 12 months' time will trade at $2342 per Troy ounce.
Too bullish by half? Maybe.
But as a crowd, BullionVault users called it pretty darn close this time last year!
Back then, gold was trading beneath $1800 per ounce.
So against today's price of $2025, your forecast of $2012 looks awfully wise.
It looks even more remarkable when you consider the big challenge which gold prices faced this year.
You see, the gold price has risen this year even as real interest rates rose at the fastest pace since at least 1950, led by the US Federal Reserve.
This is remarkable because, as a non-yielding asset, gold typically loses value when interest rates rise, most especially when cash-in-the-bank pays a sharply higher rate of return relative to the pace of inflation.
On an annual average basis, 2023 saw the US Fed's key interest rate jump by a massive 7 percentage points once you account for inflation. That's steeper even than the real-rate hike of 1981, imposed to kill the prior decade's double-digit inflation at the cost of a deep economic recession.
That year's jump of 6 percentage points in real US interest rates saw the value of gold bullion plunge by 32% from what remains a modern-era record, the heaviest ever real terms loss on BullionVault's analysis of 100 years of historical data.
Yet in 2023, in contrast, the real price of gold actually rose, adding more than 3% on an annual average basis.
How did gold overpower the kryptonite of steeply higher real rates?
Supported by household demand for jewellery, small bars and coins, the price of gold most often shows a strong, positive correlation with the level of private-sector investment demand.
But in 2023, private inflows to gold bullion were crushed by record high nominal gold prices, plus the highest interest rates in two decades.
Germany's formerly world-leading coin and small-bar demand, for example, has sunk by 80% net of investor selling, while the total size of gold ETPs listed in the UK and Europe has shrunk by nearly 11%, with North American-listed products shrinking almost 5%.
So who was buying? Central banks.
As a group, official sector demand more than made up the loss from private-sector investment, with the net increase in central bank purchases weighing nearly twice that drop overall on estimates published by the mining industry's World Gold Council.
Indeed, BullionVault's analysis says that central-bank demand this year equaled almost 1/3rd of new global mine supply, reaching the highest proportion of new mining output since 1963...
...back when gold bullion backed the global monetary system under the post-WW2 Bretton Woods agreement.
Private investing, in contrast, fell in 2023 to just 25% of new mine supply.
That was less than half the level of 2020's Covid shock, falling to the lowest proportion since 2013, back when gold prices sank in the precious metal's worst crash since that plunge of the early 1980s.
Private capital, in other words, has responded to gold's new all-time record high prices like it's actually crashing. Central banks, on the other hand, are buying gold like it has returned as the lynchpin of the global monetary system.
Central-bank gold demand in 2023 has in fact been even more remarkable when valued as a proportion of global GDP, rising to 0.07% across the last 12 months...just topping the level of 2022 at the highest share of economic resources since at least 1960.
Will this switch from private to government gold buying continue to support and drive prices higher next year?
Investors responding to BullionVault's latest survey believe so.
Supply and demand, led by those official-sector purchases, will have the greatest impact on price according to more than 1-in-10 respondents...
...the biggest vote for that category in 10 years of our twice-annual survey.
But leading the replies at 25.0%, albeit down from 33.0% in our mid-2023 poll, is "Monetary policy"...
...meaning those interest-rate cuts everyone is now pencilling in for 2024, including the US Federal Reserve itself.
Close behind? Polling 22.0% of votes for next year's biggest influence on the gold price comes "Geopolitics" such as the Hamas/Israel or Russia/Ukraine war or tensions between the US and China over trade, technology or Taiwan.
That's up from 17.3% in our mid-2023 survey. And close behind "Geopolitics" comes "Government spending (and the size of government deficits", polling 20.8%.
Sum it all up, and "Politics" wins hands down as the big driver of precious metals prices in 2024 according to BullionVault users, whether at central banks, the finance ministry or the department of defense (and attack).
What about "Inflation"? Polling nearly 1-in-5 votes for the biggest influence this time last year, it has sunk to just 9.0%, retreating as a key factor in the view of active investors in precious metals.
Silver, by the way, will end next year at $29 per Troy ounce according to the average forecast among the 2,002 users of BullionVault who took a few minutes to review and share their outlook in our latest survey. And that's without the more useful precious metal enjoying any central-bank demand, of course.
That's your 2024 forecast, at least. Time will tell as the next 12 months unfold!
Until then, and with Christmas next Monday followed New Year's Day the week after, these Update emails will be back on Monday 8 January.
Director of Research, BullionVault
Key data and market events since our since our last Update and for the 3 weeks ahead:
This week Eurozone + Canada inflation on Tues, UK's on Weds; US Q3 GDP update on Thurs, UK + Canada's on Fri plus US durable goods orders...
PLEASE NOTE: This content is published to inform your thinking, not lead it. It does not constitute investment advice and the information above may have already been overtaken by other events. You should not rely on any forward projections stated or implied and previous price trends are no guarantee of future movements. Any decision you make to invest may put your money at risk. If you are unable to assess this information or are unsure if precious metals are suitable for your personal circumstances, you should seek professional investment advice. Precious metals are a physical commodity not an investment within the terms and scope of the Financial Services and Markets Act 2000.