Inflation & Geopolitical Context should support Gold in Midterm

Nonetheless, Q1 2023 gold fundamentals were still interesting and most likely, the Central Banks' interest in gold could continue for much longer. In our view, the current inflationary and geopolitical environment will still support the yellow metal in mid-term, at least for the next 12-24 months.

Gold Demand Trends Q1 2023
(Mixed picture for gold demand in Q1)
Continued momentum in central bank buying and resurgent Chinese consumer demand contrasted with a negative contribution from ETFs and weakness in India. Q1 gold demand (excluding OTC) was 13% lower y/y at 1,081 tonnes (t). Inclusive of OTC, total gold demand strengthened 1% y/y to 1,174t as a recovery in OTC investment – consistent with investor positioning in the futures market – offset weakness in some areas.
Demand from central banks experienced significant growth during the quarter. Official sector institutions remained keen and committed buyers of gold, adding 228t to global reserves.
Bar and coin investment gained 5% y/y to 302t, concealing some large regional variations. In contrast, net negative demand for ETFs, although modest at -29t, generated a hefty y/y decline compared with the sizable inflows seen in Q1’22.
Global jewellery consumption was virtually flat at 478t. Jewellery fabrication exceeded consumption as stock building added just over 30t to global inventories.
Gold use in the technology sector continued to suffer from the challenging economic climate. Demand slumped to 70t – the second lowest quarter in our data series back to 2000.
Modest growth in both mine production (+2%) and recycling (+5%) led to a marginal increase in Q1 total gold supply to 1,174t. The uptick in recycling was largely a function of higher gold prices.

The LBMA Gold Price (PM) averaged US$1,890/oz during the quarter, marginally higher y/y. The price was over 10% higher than the previous quarter’s average, almost matching the Q3’20 record high.

China saw a strong relief rally in the first post-COVID quarter of unfettered consumer spending. The recovering domestic economy and healthy income growth reignited domestic consumption, while the eye-catching gold price performance spurred investment interest.

Indian demand fell sharply as local gold prices applied the brakes. Record high – and volatile – domestic gold prices discouraged both investment and jewellery consumption during the quarter.

Investment dominates the outlook for 2023. We continue to see healthy upside for investment this year, while the picture for fabrication (jewellery and technology) is more muted. Further robust central bank buying is expected, albeit below 2022’s record. Modest growth is likely in both mine production and recycling.

In conclusion, in addition to waiting with confidence for Q2 data, in short term the gold price could be slightly high to increase institutional appetite, but we think that any downward peak will be seen by Central Banks as an interesting opportunity to add value to their reserves. Conversely, but only in the short term, speculators could lighten some positions by taking part in the profits.

Technically speaking, in near term, gold could trigger some bearish consolidation as we have shown in our previous analysis.
(Click & Play on chart below to follow it)

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