What's Driving the Price of Gold?

Ruth Crowell


We speak with Ruth Crowell, CEO of LBMA, about the gold market and the trends that impact it. Crowell also shares what the gold market will look like for the remainder of the year.

What has been the demand for gold been like this year?

Available industry data from the first two quarters of 2023 reveal that demand for gold is at record levels (although Q1 demand was much stronger than Q2).  

Central banks bought a record amount of 387 tonnes of gold during the first half of the year, and it is anticipated that demand from this sector will remain net positive through the second half.

More broadly, overall gold demand – including investment and jewellery - in the first half was 7% higher than in the same period of 2022.  Specifically, the investment sector, which includes bars and coins, amounted to a total of 582 tonnes.

The one declining area in the overall demand mix was ETFs which witnessed net outflows of 50 tonnes during the period.

What are some trends impacting the gold market?

Through the first three quarters of 2023, gold principally held within the $1850-$2000 price band, recording the high for the year thus far of $2048.45 on April 13. This reflects concern about the Fed’s April 12 FOMC meeting about the success of the ongoing fight against inflation.

U.S. and global inflation, and the rate hikes applied by the majority of central banks (with the exception of the Chinese and Japanese) to combat it, has proved to be primary driver of the gold price throughout the year. 

In short, while higher interest rates tended to divert investors’ attention away from gold as real rates of return on cash materialized for the first time in a decade, this trend was balanced. And it was often overcome by the strong impression that many central bank moves were behind the curve and the fact that the U.S. economy in particular continues to grow despite predictions of an upcoming recession.

During September, the increasing formalization of the Fed’s rate policy of higher for longer, plus the fact many economists are anticipating a further rate hike, has applied a brake to the gold market, with the price declining from $1944.30 at the beginning of the month to $1870.50 on September 29, a decline of 3.8%.

What does the gold market look like for the remainder of 2023?

Despite recent weakness, the gold price in 2023 continues in positive territory, having begun the year at $1835.05 on January 3, so a gain of 1.9% to the end of September. This price growth was predicted, although perhaps understated, via an LBMA survey of professional gold analysts conducted in January, which suggested an average price through the year of $1859.90. 

This forecast was updated mid-year to $1930.33, and it remains to be seen whether this average number will maintain through the fourth quarter, as analysts continue to expect that the U.S. dollar and the Fed rates will be the primary price drivers since they have been for the first three quarters of the year and how central banks, institutions and retail investors will react in these uncertain times. 

It’s interesting to note, in this context, that through 2023, demand for gold has outstripped that for cryptocurrency investments by almost 50%.

There has been increasing calls from global gold buyers to assure the integrity of the metal they buy. What is the significance of this?  

Beyond price, an increasingly important issue for gold buyers – particularly those involved with jewellery, watch-making, and managing ETFs – has been calling to gain assurance that the metal they’re using is responsibly sourced. 

LBMA’s Good Delivery List which accredits and annually audits refineries processing and supplying gold, has been the cornerstone of responsible sourcing for many years. However, this September, the Association launched a Request for Proposal to a range of technology providers, the first step in an ambitious plan to establish a comprehensive database detailing, among other information, the origin of the gold, its trading history and, moreover, establishing an immutable chain of custody record.

Over time the database will grow in size and scope to enable buyers of gold around the world to verify the integrity of their purchases. 

This interview originally appeared in our TradeTalks newsletter. Sign up here to access exclusive market analysis by a new industry expert each week. We also spotlight must-see TradeTalks videos from the past week.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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