The 2023 banking crisis and Middle East war drove gold, silver bullion demand in 2023

(Kitco News) – While investment demand for gold may have been disappointing through most of 2023, there was one solid pillar of strength in this sector of the gold market.

According to market analysts, financial market volatility, geopolitical turmoil and economic uncertainty helped drive physical demand for bars and coins in 2023.

Sales data from the U.S. Mint shows that it sold 1.092 million ounces of gold in various denominations of American Eagle Gold coins, up more than 11% from 2022, when it sold 980,000 ounces.

Last year marked the mint’s second-best annual sales numbers in roughly a decade, just behind 2021 when it sold 1.2 million ounces of gold.

At the same time, the mint sold 24.75 million one-ounce America Eagle Silver coins, a massive 54% increase compared to the 16 million silver ounces sold in 2022.

While silver demand was solid last year, many analysts note that 2022 saw weak bullion demand as consumers faced record premiums of around 80%.

Rich Checkan, President and COO of Asset Strategies International told Kitco News that a monthly breakdown of the sales numbers tells a potent demand story for physical gold.

Checkan noted that gold and silver bullion sales spiked early in the year, between March and April, as the U.S. economy saw the collapse of major regional banks Silicon Valley Bank, Signature Bank, and First Republic Bank.

“People in the U.S. were afraid about the stability of the banking system, and they made a clear choice to ‘bank’ on gold and silver,” Checkan said. “If you look at the drop in sales May through September, it is very clear as well when Americans believed the banking crisis was over.”

After a relatively quiet summer, the physical market saw another spike in bullion sales in October, right after Hamas militants attacked Israel and triggered a new round of conflict in the Middle East.

“The conflict is still growing to this day, but geopolitical crises like this tend to trigger short-term spikes in precious metals. We saw something similar when Russia first invaded Ukraine,” he said. “My conversations with fellow dealers at the retail and wholesale levels corroborate the fact that sales flourished into the second quarter last year. The third quarter was slow, and the fourth quarter was slower.”

According to some analysts, gold’s rally in October, which eventually led to all-time highs in December, kept some consumers out of the physical bullion market in the final months of the year.

The U.S. Mint wasn’t the only facility to see robust demand last year. Earlier this month, the British Royal Mint reported record demand for its bars and coins.

Although the British Mint doesn’t publish specific sales numbers, it said a record number of customers invested in precious metals products in 2023, increasing 7% compared to 2022.

“Many global investors continue to move into precious metals investments to weather volatile financial markets,” the mint said in a press release.

However, on the other side of the world, the Perth Mint saw a sharp drop in demand for its bullion products. Sales data shows that the mint sold 665,889 ounces of gold last year, down 39% compared to 2022. At the same time, the mint sold 11.35 million ounces of silver, down 50% from the previous year.

The drop in sales from the Australian-based mint comes a year after it reported record sales.

However, it’s not just mint sales that are driving physical demand. Last month, retail behemoth Costco said in its third-quarter earnings call that it sold $100 million in one-ounce gold bars between July and September.

Looking ahead to 2024, some analysts expect the gold market to continue to see solid bullion demand.

In an interview with Kitco News last month, Joseph Cavatoni, North American markets strategist at the World Gold Council, said that although gold prices are elevated, the price is less elastic than some would expect.

“If prices are expected to go higher than $2,000, it’s not much of a barrier for consumers,” he said. 

Ole Hansen, head of commodity strategy at Saxo Bank, noted that solid physical demand helped to support prices as investment demand disappointed last year.

“Last year was a bit of a strange year when physical demand from central banks more than offset asset managers’ sale of ETFs in a year where rates and yields shot higher,” he said. “Retail investors, I’m sure, were shocked by the impact of surging inflation, and buying gold was a way of taking action against it.”

However, he added that the market could struggle early in the new year as prices above $2,000 an ounce keep some retail buyers out of the market.

“This year, the physical retail demand could be struggling a bit early on as normal trading psychology makes it difficult to buy something close to a record high,” he said. “However, the longer we hang around these levels, the more we get used to it, and eventually, it plays no role.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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