Modern Mining January 2024

COMMODITIES OUTLOOK

Gold holds strong strategic advantage in 2024 By Juan Carlos Artigas, Global Head of Research, World Gold Council

G old defied expectations in 2023, outperforming commodities, fixed income and many global stock markets. Its performance has caught the world by surprise, with prices reaching all time highs, topping out at over $2,100/oz in early December; and causing some market participants to predict that the only way is down. The outlook for gold in 2024 is more nuanced than this, however, and remains anchored in many of the drivers of its positive performance in recent years as well as new, emerging risk factors. 2023: Gold remains resilient The performance of gold in 2023 has been unex pectedly positive, especially compared to many other assets. There are myriad reasons for this, but the critical thing to note is that the majority of drivers are long-term trends and could positively impact the gold market for years to come. It’s important to remember that gold is global and benefits from diverse sources of demand. It’s unique characteristic of being both a consumer good and an investable asset means it performs well – in good and bad times. During periods of economic uncer tainty, it is the counter-cyclical investment demand that drives the gold price up. During periods of eco nomic expansion, the pro-cyclical consumer demand supports its performance. Taking stock of 2023, it’s been a year character ised by uncertainty. Central banks have kept interest rates high in the battle against inflation which is typi cally a headwind for gold. However, despite the rate environment, gold has outperformed many other assets – primarily due to extraordinary central bank

Gold has a proven track record as a crisis hedge.

buying of gold, heightened geopolitical tensions around the world and, more recently, expectations of rate cuts in 2024. Let’s dig a bit deeper into these trends. Colossal central bank demand Probably the most talked about topic in the gold industry this year has been the significant step up in buying by central banks since the second half of 2022. While the volumes reached new highs, the trend is not new. Central bankers have been net buy ers of gold for nearly 14 years. Having witnessed the global financial crisis, central banks are well aware of the positive effects of holding gold in their reserve portfolios through volatility and economic hardship. But what has been driving their increased appetite for gold, especially given that they have been net buyers of gold for over a decade? We know from our annual central bank survey that the top three factors driving reserve managers’ deci sion making are inflation concerns, interest rate levels and geopolitical risks. With that in mind, it comes as no surprise that central banks and other buyers turn to gold as a proven diversifier and hedge against the effects of inflation as well as a means to mitigate geo political uncertainty. In fact, it is estimated that central bank demand added 10% or more to gold’s perfor mance in 2023 and, even if 2024 does not reach the same heights, above-trend buying should still offer an extra boost to the gold market. Geopolitical risk rising Historically, gold has a proven track record as a crisis hedge, thanks to its lack of credit risk and nega tive correlation to risk assets. Globally, geopolitical risks have increased significantly since the start of the pandemic. There are the obvious peaks of

Gold always has ready buyers.

Gold defied expectations in 2023, outperforming commodities, fixed income and many global stock markets.

12  MODERN MINING  January 2024