Gold demand defies headwinds caused by strong dollar, high interest rates

Global gold demand defied headwinds caused by strong dollar and high interest rates to record a year-on-year increase of 12 per cent to 2,189 tonnes in the first half of 2022 as prices eased from exceptionally high levels, the World Gold Council said on Thursday.

However, in the second quarter gold demand (excluding over the counter) was down eight per cent year-on-year to 948 tonnes.

In the second quarter, consequent to a price drop of six per cent exchange-traded fund investors dumped their gold holdings to the tune of 39 metric tonnes. Indeed, they sold almost as much as they purchased in the same period a year ago, when they snapped up 40.6 tons of the yellow metal.

“Looking ahead, we see both threats and opportunities for gold in second half of 2022. Safe haven demand will likely continue to support gold investment, but further monetary tightening and continued dollar strength may pose headwinds. As many countries face economic weakness and the cost-of-living crises continues to squeeze spending, consumer driven demand will likely soften, although there should be pockets of strength,” said Louise Street, senior analyst EMEA at the WGC.

According to analysts, the liquidation was probably worth $2.1 billion based on recent prices of $1,723 a troy ounce.

“Net H1 inflows totalled 234t, compared to 127t of outflows in H1 2021. However, the Q2 decline likely sets a weaker tone for ETFs in H2, given a potentially softening inflation outlook amid continued rate rises,” WGC said in its Gold Demand Trends report

“While we have seen prices ease from exceptionally high levels in Q1, gold has been one of the best performing assets so far this year,” WGC said.

After an initial rally in April on geopolitical risks and building inflationary pressure, the gold price dropped in the second quarter of 2022 as investors shifted their focus to rapidly rising interest rates and a strikingly strong US dollar.

Street said in the first half, the global gold market was supported by macroeconomic factors such as rampant inflation and geopolitical uncertainty, but it also faced headwinds from rising interest rates coupled with an almost unprecedented surge in the value of the US dollar.

“And while we have seen prices ease from exceptionally high levels in Q1, gold has been one of the best performing assets so far this year,” Street said.

— issacjohn@khaleejtimes.com