Demand for gold rose to an 11-year high in 2022

Demand for gold rose to an 11-year high in 2022. It was driven by “colossal buying by central banks” and active retail investor interest in investment gold, the World Gold Council (WGC) said.

Annual gold demand jumped 18 percent to 4,741 tonnes. That excludes over-the-counter (OTC) transactions. It is the highest demand since 2011; in the fourth quarter, demand reached a record 1337 tonnes.

The world’s central banks were particularly active in buying gold, with 1136 tonnes of the yellow metal purchased last year, the highest level since 1967. Data collected since 1950 show that the volumes bought are the second highest. Compared to the previous year (2021), gold purchases were up by as much as 150 percent.

Demand for gold rose to a near-record high in 2011. Central bank purchases are in red, physical investment demand in purple, and jewelry demand in light green). Source.

Geopolitical tensions and rampant inflation

“Geopolitical tensions and high inflation were the main reasons to buy and hold gold,” the WGC wrote in its report. Central banks have become more interested in gold because they know how the precious metal protects against crises and maintains its purchasing power over the long term. “It is no surprise that central banks began to increase their purchases in a year characterized by geopolitical uncertainty and rampant inflation.”

The US dollar was still backed by gold the last time central banks bought this much gold. The gold standard was established at the Bretton Woods Conference in 1944. The Americans abandoned the gold standard in 1971 because high social spending and the Vietnam War forced so much money creation that it could no longer be fully backed by gold.

“Central bank purchases show that gold continues to be a vital asset in the monetary system. Even though gold is no longer used as collateral for currencies, it is still held. Why? Because it is a real asset,” Juan Carlos Artigas, head of research at the World Gold Council, told Kitco News.

It is not known exactly who is buying the gold

The report says it is unknown which central bank(s) bought the gold. In the second half of the year, only a quarter of the purchases were reported, and it is believed that the Central Bank of China is mainly behind the giant and remote purchases. Officially, China said to buy 62 tonnes last year.

Officially, Turkey bought the most gold – 148 tonnes in total. The country’s gold reserves now stand at a record 542 tonnes. Annual inflation in Turkey accelerated to 85% in autumn.

“If the information on unreported purchases becomes available, the figures may still be subject to adjustment,” the WGC said. Other significant buyers included India, Egypt, Qatar, Iraq, and the United Arab Emirates. There were few buyers among central banks in developed countries but no big sellers.

Central banks have been net buyers of gold (volumes bought more than those sold) for 13 years.

Investment demand increased

Investment demand for gold increased by 10% year-on-year to 1107 tonnes. Outflows from gold exchange-traded funds (ETFs) continued last year but were lower than in 2021.

For jewelry, demand fell by 3 percent to 2,086 tonnes in 2022. Demand fell mainly towards the end of the year when gold prices started to rise rapidly after bottoming out in November.

Gold supply rose by 2 percent last year to 4755 tonnes. Output from mines was 3,612 tonnes, the highest in four years.

Last year’s demand will be hard to surpass

The World Gold Council acknowledged that it would be difficult to exceed last year’s high demand in 2023 because purchases were so high historically.

“It is reasonable to believe that central bank demand in 2023 will not be as high as last year,” the report said. “Central banks’ aggregate reserves are growing more slowly, making it difficult to continue such active gold purchases. We, therefore, believe that demand will be more moderate in 2023.”

It was also noted that it is challenging to forecast central bank demand because it is influenced by policy.