Despite expected 9% drop in gold demand, China continues to buy

Demand down 9%

Gold demand is expected to fall 9% in 2023 as central banks reduce official purchases of the precious metal after a record year, with prices also facing downward pressure in the second half of 2023, according to Metal Focus.

“The projected 9% decline in demand is almost entirely due to a decline in official sector net purchases from last year’s all-time high; most other demand sectors will grow modestly,” Metals Focus said in its Gold Focus 2023 report published Wednesday.

While demand is down, total gold supply is forecast to increase by 2% this year, driven by higher mining and recycling output, resulting in the gold market returning to a market surplus of more than 500 tonnes this year.

Gold demand is forecast to decline in 2023 after hitting a record in 2022. Illustration photo

The outlook for gold prices is mixed for the rest of 2023, the research said. While the average annual price is estimated to rise 5% to a new all-time high of $1,890, prices will come under pressure in the second half of the year, the research said. consultancy.

“At $1,730, our projected low for 2023 represents a relatively limited 12% decline from current levels at the end of May, and at $1,890, our forecast for the annual average marks another record high,” said Philip Newman, managing director of Metals Focus.

Gold has gained about 7% so far this year after a strong rally on expectations that the Federal Reserve was nearing the end of its tightening cycle and might even need to cut interest rates by year-end. However, the rally stalled in May as market expectations shifted to “higher for longer” interest rates.

“As investors adjust their interest rate expectations, this will create new headwinds for gold prices in the second half of 2023. Metals Focus warns that current expectations for a rate cut before the end of 2023 are too strong given the persistent strength of the US labor market and still-rising inflation,” the report said. “We still see the US economy preparing for a soft landing, which will give the Fed the ability to keep interest rates high for longer.”

China is buying gold diligently.

The gold market continues to struggle in neutral territory, with prices holding support above $1,950/oz but failing to retest the $2,000/oz resistance; however, there remains one consistent gold buyer in the current environment.

China bought about 16 tons of gold last month, according to updated reserve data from the People's Bank of China. This was the seventh consecutive month that the Chinese central bank bought gold.

China has bought 144 tonnes of gold since it began its latest round of purchases in November. The central bank's total reserves now stand at around 2,092 tonnes.

Analysts have noted that central bank demand has transformed the gold market since last year when the World Gold Council (WGC) reported record official industry demand of 1,078 tonnes.

Analysts have said central bank purchases are providing crucial support, keeping prices high.

In a recent interview with Kitco News, Tavi Costa, portfolio manager at Crescat Capital, said that he doesn't expect gold's growing importance in central bank reserves to change anytime soon.

“Escalating geopolitical conflicts have increased the importance of owning a neutral asset with no counterparty risk, while also having a centuries-long history of trust as a safe haven. Gold is the only asset that qualifies,” he said in a recent report.

Costa added that during the 1970s, the share of gold in central reserves averaged around 40%; today, the average is just over 15%. He noted that if gold reserves returned to levels last seen more than 50 years ago, $3.2 trillion would flow into the precious metals market.

Despite a 9% drop in gold demand in 2023, China is still buying in large volumes. Illustrative photo

“It is impossible to overstate how much central bank demand has transformed the gold market,” he said in the interview.

Analysts expect central banks to continue buying gold, even if at a slower pace than last year's record levels.

Last month, the WGC released its 2023 Central Bank Gold Reserve Survey, revealing that 24% of respondents were looking to buy gold in the next 12 months.

Financial market concerns, plans to buy domestically produced gold and rebalancing portfolios are driving further purchases.

“Gold’s ‘historical status’ continues to be the top reason for central banks to hold gold, with 77% of respondents saying it is highly or somewhat relevant,” the survey said. “This is followed by gold’s performance during times of crisis” (74%), “long-term store of value/inflation hedge” (74%), “effective portfolio diversification” (70%) and “no default risk” (68%).”

Source: https://www.congluan.vn/mac-nhu-cau-vang-du-kien-giam-9-trung-quoc-miet-mai-mua-vao-post250752.html