The World Gold Council (WGC) reports that total gold demand hit a record last year, and is expected to rise again in 2024. Overall demand climbed by about 3% to 4,899 metric tons last year, supported by strong demand in the opaque over-the-counter market, as well as from sustained central-bank buying, according to the WGC’s full-year report.
It is interesting to note annual gold demand, excluding OTC, of 4,448 tons was actually 5% below a very strong 2022. But when you Include the OTC markets’ flow of 398 tons, total gold demand in 2023 was the highest on record, at the aforementioned 4,899 tons.
OTC activity includes sovereign funds, high net-worth individuals, and hedge funds investing in gold bars. Annual demand growth in this market soared by 753% in 2023! Buying by central banks continued at a breakneck pace, with annual net purchases of 1,037 tons last year, just 45 tons shy of the record set in 2022, according to the WGC. The buying was led by China, Poland, and Singapore.
The precious metal rallied 13% in price in 2023 - and touched a record high in early December \- on the back of economic and political uncertainty, geopolitical tensions, and expectations that the Federal Reserve is poised to start cutting interest rates after its rate-hiking campaign to tame inflation.
Here’s an important point to remember - the record demand levels and rising price for gold (GCJ24) have come despite interest rate hikes last year, which usually are a negative for gold.
All of these factors are still with us in 2024. As is one more huge factor - China.
China Drives Gold Demand
The Financial Times reports that Chinese investors have been buying gold as a refuge from local property and stock market mayhem. China was the principal bright spot globally for gold jewelry and investment flows in 2023, according to the World Gold Council report.
Chinese investment demand for physical gold — bars and coins — grew 28% to 280 tons, largely offsetting a steep drop in Europe. The country’s jewelry consumption rose 10% to 630 tons last year, even as global demand remained flat.
And make no mistake, Chinese markets are in the midst of a maelstrom. The CSI China 300 Index ($CSHZ) has fallen more than a fifth in the past year, while the value of new home sales among the country’s biggest developers in December was down 35% from a year earlier.
Chinese investors face a real dilemma as to where to put the huge level of savings they have accumulated during the pandemic lockdowns. The only “clean shirt” in the laundry seems to be gold, so gold exposure has become a necessity for Chinese investors as they continue to face economic uncertainty.
The takeaway from all of this is that gold is in a “new era,” having broken its long-standing correlation with real interest rates. It seems to now be driven by central banks - mostly in the emerging world - and Chinese household asset allocation.
1 Mining Stock to Buy for Gold Exposure
I believe this makes gold a “must-own” in most portfolios. In fact, some former colleagues of mine in the financial advisor business are using it as a substitute for bonds in an overall portfolio.
There are a number of ways to gain exposure to gold. You can buy gold bars or coins, or you can buy gold-focused mutual funds and ETFs, or you can buy gold stocks.
If you’re interested in a gold stock, Agnico-Eagle Mines (AEM) \- the world’s third-largest gold producer - is a good choice. The company is a high-quality senior gold producer that has mines mainly in low-risk jurisdictions. They have mines and projects in Canada (Abitibi Gold Belt), Australia, Finland, and Mexico. It owns 2 of the top 10 biggest gold mines in the world, with multi-decade production.
AEM's five cornerstone assets each produce roughly 300,000-700,000 ounces of gold annually, consisting of Detour Lake, Canadian Malartic, Meadowbank, Meliadine, and Fosterville. Four of the five are in Canada.
These mines accounted for around two-thirds of the company’s production of 3.1 million ounces of gold in 2022. Agnico-Eagle had about 15 years of gold reserves at the end 2022.
And here’s something else you rarely see in a gold miner - Agnico-Eagle has paid dividends for 40 consecutive years. Its current yield is decent, at 3.16%.
AEM stock is a buy anywhere around $50 a share.
On the date of publication, Tony Daltorio did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
