Gold's Bullish Run in 2023 and Outlook for 2024

In 2023, gold experienced one of its most bullish years recently, rising by 15 percent to reach a record closing price of $2,078 per ounce on December 28. This surge was attributed to increased demand, especially from central banks, geopolitical risks, and concerns over potential asset seizures.

Central banks, particularly those in emerging markets, played a significant role in driving gold demand. The World Gold Council (WGC) reported that central banks' demand contributed approximately 15 percent to gold's annual performance. De-dollarization efforts to lessen exposure to the US dollar drove emerging market institutions, with China, Turkey, India, Iraq, and the Philippines showing an insatiable appetite for gold.

The geopolitical landscape, including events like the war in Ukraine and primary elections globally, contributed to heightened uncertainty and investor unwillingness to give up gold. Geopolitical risks were estimated to add 3 to 6 percent to gold's performance.

Despite the strong performance of gold in 2023, there were significant net outflows from gold exchange-traded funds (ETFs), marking the third consecutive year of negative annual net ETF flows. Europe and North America experienced substantial outflows, while Asia saw modest net inflows driven by geopolitical tensions and positive gold performances in different currencies.

In 2024, analysts remain bullish on gold, expecting strong buying by central banks to support prices. The potential for above-trend buying is anticipated to provide an additional boost to gold prices. The global economy's response to central banks' contractionary monetary policies will be a crucial factor influencing gold's performance. If more recessions occur, retaining gold in portfolios becomes justified. However, a successful "soft landing" scenario may lead investors to shift into bonds and riskier assets, impacting gold prices.

Analysts agree that the gold-price rally is unfinished, and further upside could be captured in the coming months. Factors such as momentum from hedge funds, continued central bank purchases, renewed demand from ETF investors, and geopolitical risks are expected to support gold prices.

While challenges may exist, such as the weakening inverse correlation between US real inflation-adjusted bond yields and gold prices, the overall outlook for gold in 2024 remains positive. Market indicators, including net solid long positioning by gold traders and improved expectations of the gold price amid shifting macro drivers, support the anticipation of higher gold prices.