In 2022, gold demand was the strongest it has been in over 10 years
The data on gold demand trends for all of 2022 is in, and it reveals that 2022 was the strongest year for the precious metal in over a decade. Last year saw a record annual London Bullion Market Association (LBMA) price of $1.800 an ounce and closed with a marginal gain in the gold price despite significant headwinds.
Overall demand trends for gold in 2022
In its “Gold Demand Trends” report for the fourth quarter and all of 2022, the World Gold Council reported an 18% increase in annual gold demand, excluding over-the-counter demand. At 4,741 tons, gold demand approached the high recorded in 2011, which the council described as “a time of exceptional investment demand.” The fourth quarter saw record gold demand, at 1,337 tons.
The World Gold Council cited the strength of the U.S. dollar and rising global interest rates as material headwinds for the gold price. The average fourth-quarter price was slightly down on both a quarter-over-quarter and year-over-year basis.
However, the sharp November rally was followed by steady recovery in the weeks leading up to the end of the year. The World Gold Council described the central bank purchases as “colossal” in 2022, adding that “vigorous” buying among retail investors also gave the gold price a boost alongside slower outflows from exchange-traded funds.
The nitty gritty
The organization described retail investment demand (excluding OTC demand) as “brisk” at 1,107 tons in 2022. Total investment demand rose 10% in 2022, lifting demand for gold bars and coins by 2% to 1,217 tons, its highest level in nine years. Holdings by gold ETFs declined by less than they did in 2021, falling 110 tons in 2022 versus the previous year’s 189-ton decline.
Meanwhile, consumption of gold jewelry softened slightly in 2022, declining 3% to 2,086 tons. The World Gold Council reported that much of that weakness was in the fourth quarter on the back of the surging gold price.
However, central bank purchases recorded a second straight quarter of “huge” demand for gold at 417 tons, which pushed full-year gold purchases by central banks to the highest level in 55 years, at 1,136 tons. The World Gold Council clarified that most of those purchases were unreported.
Technology-related gold demand plunged sharply in the fourth quarter, dragging the full-year demand for the sector down by 7%. The council suggested that demand for consumer electronics tumbled during the quarter as the global economy deteriorated.
Gold demand by region
Regionally, COVID-related impacts continued to weigh on demand in China, resulting in a sharp slowdown there. However, Europe, Turkey and the Middle East displayed robust growth, offsetting the plunge in Chinese demand.
Demand for gold in India remained resilient in 2022 compared to pre-pandemic levels. Although 2022 started relatively soft, demand from Indian consumers recovered as the year wore on, ending the year just shy of the robust demand observed in 2021.
The World Gold Council reported that ongoing recovery from the pandemic boosted full-year comparisons, although demand was occluded in December by the sharp rally in the gold price locally in India.
Gold supply ticked higher
The gold supply rose 2% in all of 2022, ending the two-year streak of declining supply as it climbed to 4,755 tons on the back of modest gains in all segments. Mine production ticked up to a four-year high of 3,612 tons, contributing to the increase in the gold supply.
While mine production was up 1% for all of 2022, it failed to match the peak reached in 2018. Only marginal gains were observed from the annual recycling supply despite the robust price increases in local currencies seen in many markets.
What to expect for 2023
The World Gold Council predicts that gold investment will rise in 2023, with OTC and ETF demand replacing retail bar and coin demand as the leading drivers of growth. The organization noted that OTC demand and demand from ETFs were depressed in 2022.
However, it expects retail investment in Western markets to decline in 2023 but remain healthy as worries about inflation fade. On the other hand, the World Gold Council expects robust gold demand in Asia due to increased growth in the region.
Meanwhile, the council warned that the risk of a recession occurring remains elevated, as do geopolitical risks stemming from the war in Ukraine and other global concerns. It expects these risks to support interest in the yellow metal, presenting the possibility of upside as the year draws on.
The World Gold Council doesn’t expect central banks to buy as much gold in 2023 as they did in 2022. It warned that reduced total reserves could restrain the capacity to increase existing allocations to the precious metal. However, the council also noted that some central banks report changes in their gold allocations at a significant time lag, which invites a significant level of uncertainty, predominantly to the upside.
The World Gold Council looks for continued improvements in demand for gold jewelry in 2023 as a follow-up to the resilience noted in 2022. However, it also warned that a more severe economic drawdown could weigh on global demand, undermining the potential for robust demand trends in China.
The council predicts that China’s re-opening from its zero-COVID policy created pent-up demand for gold jewelry in the country, although potential headwinds include a fresh spate of COVID infections. The World Gold Council also noted that gold demand in India started 2023 off at a sluggish rate, which could continue if prices in India remain high.
It predicts a modest increase in total gold supply in 2023 amid expansion at existing operations. Although the council expects recycling activities to decline, it suggested that falling inflation in the West and sales driven by recessionary woes could drive upside versus its predictions.
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