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Who has got it right on gold: central banks or private investors?

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Gold’s run of record-high prices in 2023 has met the weakest level of private investing since the precious metal’s deep bear market of a decade ago. That contrasts with another strong year of gold demand from central banks, running at the heaviest since the early 1960s.

“The split in gold between private investment and central banks couldn’t be starker,” says BullionVault director of research Adrian Ash. “While central banks are buying gold like it has returned as the lynchpin of the global monetary system, private investors are selling or shunning the precious metal as though it’s stuck in a bear market.”

Despite last year’s dreadful geopolitical news, gold lacked urgency for private investors as global stock markets almost reversed 2022’s crash.

High interest rates and record-high gold prices are deterring new buyers while inviting continued profit-taking among existing investors. In contrast, central banks led by China continue buying gold regardless of price, seeking to de-dollarize their foreign reserves to spread risk and reduce the risk of exposure to US sanctions. That highlights the worsening mistrust and tension between major powers ahead of 2024’s US election.

“With gold’s uptrend looking set to continue in 2024, private-sector gold bullion demand is likely to rally as the US Fed leads Europe in starting to cut interest rates,” BullionVault’s Ash said. “A more marked rebound will probably need fresh urgency from a geopolitical, economic or financial shock.”

SIPP investors ARE turning to gold

Over the last three months, The Pure Gold Company has seen a 317% increase in clients removing exposure to equities, bonds and cash within their SIPP/Pension to purchase physical gold within the same vehicle.

Josh Saul, CEO of the gold investment firm said, ”Our investors are concerned about their future retirement prospects considering the geo-political instability in both Russia and the Middle East, the inflationary environment and the potential for a global recession. This uncertainty and risk can have a detrimental effect on pension assets like equities, whereas physical gold has a strong track record of safety and wealth preservation during during periods of volatility.”

Whilst gold has a track record of outperforming all asset classes since the turn of the century, Saul said his clients are less concerned with growth and more focused on prioritising safety and security in order to preserve their wealth and secure their future.

Inflation can substantially erode pension savings, so fund managers work to balance long-term growth with capital preservation. But the pursuit of growth often means a greater allocation of global equities which can be volatile in uncertain times.

“Our clients are buying gold to counteract this potential volatility,” said Saul. “They know that in general gold grows slowly in good times and quickly during crises. Some of them also consider gold a useful holding asset, keeping their powder dry until other attractive assets become available or the markets look more stable.”

The Pure Gold Company always advocates a balanced portfolio, and as little as a 5% allocation in gold increases risk-adjusted returns, or greater returns without greater risk.

According to the World Gold Council, increasing gold allocation in a pension can substantially increase the risk-adjusted return.

The Pure Gold Company says its clients want the same protection against risk as institutional pension funds can get, which is why they’ve been buying gold in their Self-Invested Personal Pension, riding out the uncertainty until the future looks more stable.


How has the gold price been performing recently?

Spiking to a new spot market record of $2143 per Troy ounce at the start of December, the price of gold ended 2023 with a new year-end, quarter-end, month-end and weekend record high in terms of the US currency, rising 13.7% from the previous New Year’s Eve to finish at $2062 per Troy ounce (+7.8% to £1622) after the Federal Reserve confirmed that it plans to cut Dollar interest rates this year.

In response, fewer private investors bought gold bullion in December than any month since May 2019, down 12.0% from November’s count. The number of sellers in contrast rose 3.5% to the most since October’s 7-month high.

Together, that pushed down the Gold Investor Index – a unique measure of private investor behaviour in physical bullion – by half a point to 51.4, the lowest December reading since 2014, when gold prices extended the previous year’s steep price crash following the precious metal’s then-record peaks of the global financial crisis. It also capped the index’s annual average at the lowest in 9 years, down 1.6 points from 2022 at 53.0.

The Gold Investor Index would read 50.0 if the number of buyers exactly matched the number of sellers across the month. It hit a decade peak of 65.9 as the Covid pandemic went global in March 2020.

Record annual outflow for privately owned gold in 2023

By weight, gold’s record-high finish to 2023 saw BullionVault users sell more of the ‘safe haven’ precious metal than they bought as a group for the fourth month running, shrinking their total holdings – securely vaulted and insured in each client’s choice of London, New York, Singapore, Toronto or Zurich – below 47 tonnes for the first time since March 2022.

But while BullionVault user holdings are now 2.6% lighter than August 2023’s record and 1.2 tonnes smaller than at New Year 2023 – a record-heavy annual outflow – they rose in value by 11.0% in Dollar terms across last year to reach a new record at end-December above $3.1 billion (+5.1% in Sterling to £2.4bn).

What about the silver market?

The Silver price tends to follow that of gold. It’s month-average price rose in December, up 2.5% in Dollar terms to reach $24 for the first time since July (+0.6% in Sterling to £18.95), the precious metal fell sharply into month-end, losing 4.9% in Dollar terms from the end of November’s finish at $25, the highest since mid-2021.

That saw the number of silver buyers rebound by 43.6% from November’s 13-year low, while the number of sellers sank by 41.3% from what was a 7-month high. Together that pulled the Silver Investor Index up 4.4 points from November’s new series low to read 50.8 last month.

By weight, investors were net liquidators of silver for the 7th month of 2023 in December, selling 14 tonnes more than they bought as a group on BullionVault and shrinking their total holdings to 1,214 tonnes.

The smallest silver holding in 31 months and 4.2% below October 2022’s record level, it entered New Year worth $928 million, down 3.6% in Dollar value from 12 months before (-9.0% in Sterling to £728m).

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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