Gold demand surged to 11-year high in 2022 on central bank ‘colossal’ purchase

Prayed Demand soared to an 11-year high in 2022 thanks to “colossal buying by the central bank, helped by vigorous buying by retail investors,” according to the World Gold Council.

Annual gold demand rose 18% to 4,741 tonnes (not including over-the-counter or over-the-counter trading) for the full year, the highest annual number since 2011, buoyed by a record demand of 1,337 tonnes in the fourth quarter.

The key to the rise was a 55-year high of 1,136 tonnes bought by central banks throughout the year, the industry-backed group revealed, noting that most of these purchases “went unreported”.

This marked a 152% increase from 2021, when central banks bought just 450 tonnes of gold, with the World Gold Council attributing the rise to geopolitical uncertainty and high inflation.

“Central bank net purchases in the fourth quarter totaled 417t, bringing total purchases for the second half to 862t. Echoing the third quarter, the data for the last quarter of the year was again a mix of reported purchases and a substantial estimate of purchases. unreported,” the WGC said.

“If more information about this unreported activity becomes available, these estimates may be revised.”

Investment demand for gold rose 10% to 1,107 tonnes, while gold ETF (exchange traded fund) holdings saw fewer outflows in 2022 than in the previous year.

Jewelry consumption fell 3% in 2022 to 2,086 tonnes, with much of the weakness concentrated in the fourth quarter when gold prices rose.

Total annual gold supply rose 2% in 2022 to 4,755 tonnes, and mine production reached a four-year high of 3,612 tonnes.

massive central bank purchase

“This marked a banner year for central bank purchases: 2022 was not only the 13th consecutive year of net purchases, but also the second-highest level of annual demand on record since 1950, driven by demand of +400t ​​in both the third as in the fourth quarter”. said the WGC.

The group’s annual survey of policymakers found that the key drivers behind gold holdings were its “performance in times of crisis” and its “role as a source of long-term value.”

“It is no surprise then that in a year marked by geopolitical uncertainty and rampant inflation, central banks chose to keep adding gold to their coffers, and at a fast pace.”

The majority of central bank purchases in 2022 came from emerging markets, with the Central Bank of Turkey being the largest buyer with a record 542 tonnes. China, India, Egypt, Qatar, Iraq, the United Arab Emirates and Oman significantly increased their gold reserves during the year.

‘It may be different this time’

Despite a difficult context of rapidly rising interest rates and a strong American dollar For much of the year, the fourth-quarter rally was enough for gold prices to turn a slight gain into 2022, with a 3% quarterly gain leading the precious metal up 0.4% year-over-year.

Gold typically weakens in times of rising interest rates and a strong dollar, partly because its price is quoted in US dollars despite most of the demand originating outside of the US. fargo wells featured in a note last week. This means that the purchasing power of non-US buyers is reduced and hurts global demand for gold.

Wells Fargo’s head of real asset strategy John LaForge also noted that since gold is a non-interest-bearing asset, it becomes less attractive to institutional investors who can buy Treasuries and other interest-bearing assets. when rates go up.

Gold started 2022 well, rising 12% through March, but fell once the US Federal Reserve began aggressively raising interest rates to tame inflation, leading to a stronger dollar. and generated significant obstacles for the precious metal.

He The spot price of gold is also up more than 5% so far in 2023, trading at around $1,926 per troy ounce as of Wednesday morning. LaForge said that while Wells Fargo currently has a neutral view on precious metals versus other commodities, the US banking giant does not necessarily expect poor performance.

Wells Fargo’s year-end target range remains $1,900 to $2,000, but LaForge said “this time it could be different.”

“We may even need to increase our target range by year-end 2023 if the US dollar remains range-bound and we gain confidence that rate hikes are nearing completion,” he added.

Gold becomes ‘very expensive’ for consumers

James Steel, chief precious metals analyst at HSBCHe said rising prices could eventually start to compress demand in 2023 as gold becomes “very expensive for consumers”, especially as around 70% of purchases are concentrated in emerging markets.

“Buying on the ground (coins, bars, jewels) will get more and more expensive and this could at least slow the rally so I would certainly be cautious and the HSBC side is that the Fed will hold rates and not will reduce them in the second half of the year,” he said.

“If that is done as 2023 unfolds, that could also take some of the oxygen out of the gold market.”