Bullion, central bank purchases drive gold demand to 10-year high

Global gold demand grew 18 per cent annually to hit 4,741 tonnes in 2022, the highest since 2011, driven mostly by “vigorous" bullion purchases by retail consumers and “unprecedented” physical investment by central banks, the World Gold Council (WGC) said in a report on Tuesday.

Central banks added a whopping 1,136 tonnes of gold worth some $70 billion to their stockpiles in 2022, by far the most of any year since 1967, the WGC report said.

Going forward, gold demand faces mixed prospects in 2023 but with upside potential. Investment will likely be supported by elevated recession and geopolitical risks, and jewellery demand should benefit from continued recovery in China. Central bank buying could struggle to match 2022, however, it said.

China, the world's largest gold-consuming nation, saw jewellery demand fall 15 per cent last year to 571 tonnes, well below its 10-year average, while India's gold consumption in 2022 fell 3.0 per cent from a year earlier.

According to precious metal analysts, 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.

"Continued weakness in the 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."

The jump in central bank buying underlines a shift in attitudes to gold since the 1990s and 2000s, when apex banks, particularly those in Western Europe that own a lot of bullion, sold hundreds of tonnes a year. Since the financial crisis of 2008-09, European banks stopped selling and a growing number of emerging economies such as Russia, Turkey and India have bought.

In total, annual global gold demand jumped 18 per cent to 4,741 tonnes in 2022, "almost on a par with 2011 – a time of exceptional investment demand," the report said. The full-year gains were helped partly 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 2.0 per cent from 2021. The report said that total investment demand rose 10 per cent to 1,107 tonnes last year.

"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. "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. 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 dollar to a 20-year high.

— issacjohn@khaleejtimes.com

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