31. December 2022; Source: Metals Focus, Refinitiv GFMS, World Gold Council
Physical investment in gold from retail investors and central banks was the dominant theme for 2022 as the market saw the most significant growth in roughly 10 years, according to the latest report from the World Gold Council.
Tuesday, the WGC published its fourth quarter and full-year Gold Demand Trends report, which highlighted “vigorous” bullion purchases from retail consumers and unprecedented purchases from central banks. In total, annual global gold demand jumped 18% last year to 4,741 tonnes, “almost on a par with 2011 – a time of exceptional investment demand,” the report said. The full-year gains were helped part by record demand in the fourth quarter of 1,337 tonnes, the WGC added.
Growth in the gold market came as investments in gold-backed exchange-traded funds declined by 110 tonnes last year. However, the WGC said ETF outflows in 2022 were significantly better than 189 tonnes sold in 2021.
Retail investors did most of the heavy lifting as global bar and coin demand rose to a nine-year high of 1,217 tonnes, up 2% from 2021. The report said that total investment demand rose 10% to 1,107 tonnes last year.
The report said that bar and coin demand in the second half of the year was particularly strong, achieving two successive quarters of demand in the region of 340 tonnes for the first time since 2013.
“The need for wealth protection in the global inflationary environment remained a primary motive for gold investment purchases,” the report said.
“Last year was extremely interesting and was a very good example of the robustness and depth of the gold market,” said Juan Carlos Artigas, Global Head of Research at the World Gold Council, in an interview with Kitco News. “There is more to gold than one specific market.”
Solid physical demand for gold helped push average annual prices to a new record high of $1,800 an ounce. Artigas noted that not only was gold one of the best-performing assets last year, but the healthy demand came despite significant headwinds as the Federal Reserve aggressively raised interest rates to cool down inflation at a 40-year high. At the same time, rising interest rates pushed the U.S. dollar to a 20-year high.
“In spite of some of these headwinds, there was also some very positive note that resulted not only in an increase in demand, but also, resulted in a positive performance for gold overall, benefitting the investors holding it,” he said.
The need for wealth protection in the global inflationary environment remained a primary motive for gold investment purchases
Looking ahead, the WGC said that sees an improving outlook for ETF demand in 2023, particularly as the Federal Reserve is expected to end its aggressive easing cycle in the first half of the year.
“Gold’s stable performance in 2022, despite strong headwinds from rising rates and a strong dollar for most of the year, has reignited investor interest,” the analysts said. “Continued weakness in the US dollar, growing recession risks, a continued high bond-equity correlation and elevated geopolitical risk form the backbone of a positive tactical case for gold in 2023.”
Artigas noted that since the start of the year, interest in gold-backed ETFs has started to pick up. “There are still a lot of opportunities for investors to use gold as a hedge and diversification tool,” he said.
Central banks buy 417 tonnes of gold in Q4
Another major pillar of strength last year was insatiable demand from central banks. In the fourth quarter, central banks bought 417 tonnes of gold, adding to the nearly 400 tonnes bought in the third quarter. The WGC said that central banks purchased 1,136 tonnes of gold last year, the highest level of buying since 1967. Similar to the third quarter report, most of the gold purchases were unreported.
“2022 was not only the thirteenth consecutive year of net purchases, but also the second highest level of annual demand on record back to 1950, boosted by +400t demand in both Q3 and Q4,” the WGC said in the report. “Our most recent annual central bank gold survey highlights two key drivers of central banks’ decisions to hold gold: its performance during times of crisis and its role as a long-term store of value. It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers at an accelerated pace.”
Artigas said that the WGC expects central banks to remain net gold buyers for the foreseeable future, even if the pace of purchases slows from the record levels seen last year.
“Central bank purchases are highlighting the fact that gold remains a very important asset in the monetary system. Even though gold is not backing currencies anymore, it is still being utilized. Why? Because it is a real asset,” he said.
Tech-sector demand for gold fell 7% last year, led by a 7% drop in electronic demand, with significant weakness seen in the second half of the year. “The start of 2022 followed a similar pattern to 2021 as businesses, supply chains and consumers continued to recover from the pandemic. Gold demand followed suit, remaining steady during the first two quarters. However, Q3 and Q4 saw a sharp reversal driven by rapid changes in the global economy,” the report said.
The 18% jump in demand came as the gold market saw a 2% increase in supply, with mine production growing by 1% and recycling growing by 1%.
“Total supply increased by 2% y-o-y in 2022, halting two years of successive declines. Full-year mine production of 3,612t was the highest since 2018 as the mining industry remained largely free of COVID interruptions and output in China posted a full year without safety stoppages in Shandong province,” the report said. “Recycling trends in 2022 painted a mixed picture. Following a jump in the gold price in the first half of the year, recycling volumes increased by 6% y-o-y, but as gold declined in H2 2022 recycling volumes slipped 4% y-o-y. For the year as a whole, recycling volumes of 1,144t were 1% higher y-o-y.”
This article has been cited from kitco.com, the original article can be found here.