In 2022, gold demand grew 18% to 4,741 tons, which is the highest level of demand in 11 years according to the World Gold Council. This increase was due to massive central bank purchases, strong retail investor buying, and slowing outflows from exchange-traded funds (ETFs).
The gold demand in 2022 was comparable to that in 2011, which, according to the World Gold Council, was a time of exceptional investment demand.
Central banks bought 1,136 tons of gold in 2022, which was the second-highest level of net purchases on record dating back to 1950. This is also the 13th consecutive year of net central bank gold purchases.
The central banks of Turkey, India, Uzbekistan, and many others reported buying. Conversely, significant unreported buying is estimated to have taken place by central banks such as China and Russia, who often do not report their purchases. Many analysts believe that China is stockpiling gold to minimize its exposure to the dollar.
Many analysts believe that China is stockpiling gold to minimize its exposure to the dollar. The People’s Bank of China also reported its return to the gold market after a break in 2019. In November and December, the country purchased 62 tons each month, which raised its total gold reserves to over 2,000 tons for the first time.
The World Gold Council stated that central bank gold buying is driven by the performance of gold during times of crisis and its role as a long-term store of value. In 2022, investment demand for gold also saw a 10% increase year-on-year, totaling 1,107 tons.
The demand for gold bars and coins grew by 2%, with global investors purchasing 1,217 tons of gold bars and coins. The second half of the year was particularly strong for bar and coin buying, which recorded two consecutive quarters of demand for around 340 tons. This marks the first time since 2013 that this amount was purchased for two quarters in a row.
According to the World Gold Council, the primary motive for gold investment purchases was to protect wealth in the global inflationary environment.
Investors in the West had a strong appetite for gold; combined US and European purchases of gold bars and coins hit 427 tons, exceeding the previous record of 416 tons set in 2011. Institutional investors, who primarily buy and sell paper, were not as bullish on gold in 2022.
Despite rampant inflation, they bought into the narrative that the Federal Reserve was going to win the inflation fight and sold gold every time the Fed raised rates. As a result, gold ETFs recorded outflows of 110 tons, an improvement from the 189-ton outflow in 2021.
Gold Demand In Different Sectors
Gold jewelry demand in 2022 softened, falling 3% to 2,086 tons, due to rising gold prices in the fourth quarter.
Demand for gold in technology saw a sharp drop in the fourth quarter, driving a full-year decline of 7%. This was due to deteriorating global economic conditions that hampered demand for consumer electronics.
The gold used in the electronics sector fell 18% year-on-year to 58 tons in the fourth quarter, which was the largest quarterly year-on-year fall in the sector since 2009.
The gold supply in 2022 went up modestly, rising 2% on the year, with mine production increasing 1% to a four-year high of 3,612 tons. Despite the rebound in mine output, it still has not recovered to the record 2018 output numbers, which further supports claims that gold production is close to plateauing.
Gold prices fell to three-week lows on Friday due to strong US non-farm payroll data, fueling concerns that the Federal Reserve may continue raising interest rates.
The US economy added 517K jobs in January, surpassing expectations and marking the largest increase in six months, while the unemployment rate dropped to a 54-year low of 3.4%. This caused the dollar to rise 0.9% to a two-week high against a basket of currencies, making gold less appealing.
Comex gold was down 2.69% to $1,872.60/oz and March silver fell 4.3% to $22.59/oz. Major precious metals miners, such as NEM, GOLD, KGC, and AUY, also saw declines.
Gold slipped in the previous session as some investors took profits after prices reached a nine-month intraday high.
In conclusion, the World Gold Council stated that the diverse uses of gold in jewelry, technology, and by central banks/ investors means that different sectors of the gold market become prominent at different points in the global economic cycle. This diversity of demand and the self-balancing nature of the gold market highlights gold's robust qualities as an investment asset.
As for buying investing, the likelihood of gold surpassing the $2000 mark appears robust. However, the current sell-off today may make it challenging in the near term. Nevertheless, buying during the dip could be a wise decision, an opportunity that will not be ignored by the central banks.