Gold was one of the best commodity performers of 2023, behind only uranium and iron ore. The precious metal rose by 13.1% to close the year above $2,000 per ounce for the very first time, and with an average 2023 price of $1,943, it managed to notch its eighth straight annual gain. Gold has now advanced in 20 of the past 24 years, or 83% of the time.
For 2024, I believe we’ll see a fresh boost in gold’s investment case once the Federal Reserve begins trimming rates. Support should also come from central banks, which bought a record amount of gold in the first nine months of the year. Financial institutions purchased a net 800 metric tons from January to September 2023, a 14% increase from the same period in 2022, according to the World Gold Council (WGC).
China easily led all other countries, accumulating 181 tons of gold in the first nine months, as it seeks to prop up its currency and diversify away from the U.S. dollar. The WGC estimates that gold now represents just 4.3% of the country’s total foreign reserves, compared to nearly 70% for the U.S. If China were to get to America’s level, it would need to buy an additional 33,810 metric tons, which is 10 times more gold than the entire world produced in 2022.
Also, it is interesting to note that the U.S. national debt has just exceeded $34 trillion for the first time. Since the start of this century, national debt and gold have shared a strong positive correlation coefficient of 0.9. In simple terms, this means that both have tended to make similar moves day-to-day.