The most noteworthy headline is certainly that central banks have continued to purchase gold on a large scale in 2023. One could speak of a breakneck pace in the gold purchases by central banks, with the record set in 2022 almost being reached again in the past period, totaling more than 1,037 tons. Until 2022, central banks had been buying approximately 500 tons per year since the global financial crisis, but this has dramatically increased since then. Given a market volume of just under 5,000 tons, this represents a significant shift.

Three factors come into play here. Firstly, concerning the economic situation, central banks have realized that inflation is by no means dead. In the coming years, it will be crucial to control currency devaluation, as structural factors will continue to exert inflationary pressure. Secondly, geopolitics plays a significant role: We are transitioning from a world where the dollar and other Western currencies were the major reserve currencies to a world where other major economies like China and India will become reserve currencies. The dollar will be just one of several reserve currencies. However, the problem lies in the fact that the financial markets of emerging economies are not yet sufficiently developed for this shift. Liquidity is still insufficient, there are capital controls, and there are often concerns about legal systems. For the central banks of these countries, gold is a good way to diversify with respect to existing reserve currencies.

The third factor is the sanctions imposed on Russia, especially the seizure of Russian central bank assets. Politicians often view central bank reserves simply as cash that can be used in times of crisis. But that is not the case. They are investments in financial systems, making them susceptible to sanctions. In contrast, Russia held about 20% of its central bank reserves in gold within its own country, allowing them to continue to be used. Especially since two-thirds of gold demand comes from emerging markets that typically do not support the sanctions. The experiences Russia had, serve as a strong incentive for non-Western-bound emerging markets to seek alternatives to the dollar. Therefore, we expect central banks' demand to remain high.

In our analysis, it is crucial to focus primarily on the figures for the entire year, as they are less influenced by short-term seasonal effects than quarterly figures. Hence, one can indeed speak of a robust demand for gold, even though it was 5% below the exceptionally strong previous year when excluding OTC demand. When factoring in the relatively opaque OTC trading and certain inventory changes, it becomes the strongest demand for the precious metal to date. It's worth noting that in OTC transactions, affluent private clients discreetly purchase large gold bars from banks, bypassing gold retailers. Interestingly, we have witnessed significant demand in this OTC sector over the past 18 months.

Disappointingly, demand from Exchange-Traded Funds (ETFs) did not perform well. Institutional investors and retail investors have been selling gold for the third consecutive year. Last year saw sales of 244 tons. There is an interesting discrepancy compared to sales of small gold bars and coins to private individuals. This market segment, totaling 1,190 tons, is large and crucial, although it is often less noticed in the public eye than the ETF market segment. It continues to show resilience with a slight decrease of 3% compared to the previous year. By the way, the decline is practically exclusive to Germany.

Yes, but there were concerns about economic growth and worries about the performance of other financial investments. Additionally, people spent much time at home and were hardly able to spend money. As a result, they invested more in savings than usual. However, since the end of the pandemic, savings have decreased again, applicable to the USA, the Eurozone, and, of course, Germany. The savings rate is declining because it has become easier to consume again, and due to increased costs for energy, food, and other daily necessities. This has particularly affected gold purchases in Germany. In 2022, gold was actually sold on a net basis in Germany, partly due to rising interest rates. Changes in the opportunity costs of holding gold are a significant factor influencing gold demand.

Another crucial area is jewelry demand, especially in countries like China and India. It remained practically unchanged in 2023 compared to the previous year, which is interesting considering we had a record-high gold price. Nevertheless, we observed high demand for gold jewelry, confirming that there is an enduring strong interest in gold, essentially independent of the price. In India, for example, there is only a significant decline in demand when the gold price rises rapidly. After the end of such a phase, demand always recovers. Last year, it was mainly China that supported demand in this segment because China was among the last countries to emerge from the pandemic. I also anticipate strong demand from China in the first quarter, especially since trading volumes on the gold exchange in Shanghai are currently at their highest levels in several years.

In China, the precious metal is acquired despite its elevated price in dollars, driven by the anticipation of a potential weakening of the Chinese currency.

It is a smaller segment of gold demand, amounting to around 300 tons per year. This area is most dependent on the economic situation, especially showing a clear response to changes in technology demand.