Gold demand surged to 11-year high on ‘colossal’ central bank buying

Gold demand soared to an 11-year high in 2022 on the again of “colossal central bank purchases, aided by vigorous retail investor buying,” in accordance to the World Gold Council.

Annual gold demand jumped 18% to 4,741 tons (excluding over-the-counter or OTC buying and selling) throughout the 12 months, the most important annual determine since 2011, fueled by file fourth-quarter demand of 1,337 tons.

Key to the surge was a 55-year high of 1,136 tons purchased by central banks throughout the 12 months, the industry-backed group revealed, noting that almost all of those purchases have been “unreported.”

This marked a 152% improve from 2021, when central banks purchased simply 450 tons of gold, and the World Gold Council attributed the spike to geopolitical uncertainty and high inflation.

“Central bank internet purchases in This fall totalled 417t, lifting H2 whole buying to 862t. Echoing Q3, information for the ultimate quarter of the 12 months was once more a mix of reported purchases and a considerable estimate for unreported buying,” the WGC stated.

“Should extra details about this unreported exercise grow to be obtainable, these estimates could also be revised.”

Investment demand for gold elevated by 10% to 1,107 tons, whereas holdings of gold ETFs (exchange-traded funds) noticed smaller outflows in 2022 than within the earlier 12 months.

Jewelry consumption dropped 3% in 2022 to 2,086 tons, with a lot of the weak spot concentrated within the fourth quarter as gold costs rallied.

Total annual gold provide inched 2% larger in 2022 to 4,755 tons, with mine manufacturing notching a four-year high of three,612 tons.

Central bank bulk buying

“This marked a banner 12 months for central bank buying: 2022 was not solely the thirteenth consecutive 12 months of internet purchases, but in addition the second highest degree of annual demand on file again to 1950, boosted by +400t demand in each Q3 and This fall,” the WGC stated.

The group’s annual survey of policymakers revealed that the important thing drivers behind holding gold have been its “efficiency throughout occasions of disaster” and its “function as a long-term supply of worth.”

“It’s hardly shocking then that in a 12 months scarred by geopolitical uncertainty and rampant inflation, central banks opted to proceed including gold to their coffers and at an accelerated tempo.”

The majority of the central bank buying in 2022 got here from rising markets, with the Central Bank of Turkey the most important purchaser at a file 542 tons. China, India, Egypt, Qatar, Iraq, the UAE and Oman all considerably boosted their gold reserves over the 12 months.

‘It could also be totally different this time’

Despite a troublesome backdrop of speedy hikes to rates of interest and a robust U.S. greenback for a lot of the 12 months, the fourth-quarter resurgence was sufficient to see gold costs eke out a slight acquire for 2022, with a 3% quarterly acquire taking the dear steel to a 0.4% annual improve.

Gold sometimes weakens in occasions of rising rates of interest and a robust greenback, partly as a result of it’s priced in U.S. {dollars} regardless of most demand originating from exterior the U.S., Wells Fargo highlighted in a observe final week. This implies that the buying energy of non-U.S. consumers is decreased and harms world gold demand.

Wells Fargo Head of Real Asset Strategy John LaForge additionally famous that since gold is a non-interest-bearing asset, it turns into much less engaging to institutional buyers who can purchase Treasurys and different interest-bearing belongings when charges rise.

Gold began 2022 properly, up 12% by way of March, however dropped off as soon as the U.S. Federal Reserve started aggressively mountaineering rates of interest to rein in inflation, main to a stronger greenback and forming vital headwinds for the dear steel.

The spot gold price is also up more than 5% so far in 2023, buying and selling at round $1,926 per troy ounce as of Wednesday morning. LaForge stated that whereas Wells Fargo presently holds a impartial view on valuable metals versus different commodities, the U.S. banking large doesn’t essentially anticipate poor efficiency.

Wells Fargo’s year-end goal vary stays $1,900 – $2,000, however LaForge stated “it might be totally different this time.”

“We could even want to improve our year-end 2023 goal vary ought to the U.S. greenback stay vary sure and we acquire confidence that charge hikes are close to their finish,” he added.

Gold changing into ‘very costly’ for customers

James Steel, chief valuable metals analyst at HSBC, stated rising costs might finally start to compress demand in 2023 as gold will get “very costly for customers,” particularly since round 70% of buying is concentrated in rising markets.

“On the bottom buying — cash, bars, jewellery — goes to get more and more costly and this will very properly at the very least curb the rally, so I will surely be cautious, and HSBC’s camp is that the Fed will preserve charges and never reduce them within the second half of the 12 months,” he stated.

“If that’s realized as 2023 unfolds then that might take among the oxygen away from the gold market as properly.”