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Gold Trends in the 1st Q 2022 – The Growing Demand

Published by Karl Martin Karus in category Articles on 02.04.2024
Gold price (XAU-SEK)
25971,40 SEK/oz
  
+ 371,90 SEK
Silver price (XAG-SEK)
314,98 SEK/oz
  
+ 12,29 SEK

The beginning of the year’s first three months started on a positive note for gold. The price of spot gold rose by 0.2% while the US gold futures hiked by 0.1%, reaching $1,859.40 an ounce. It refuted the pessimistic predictions of most trade and market analysts for gold prices in 2022.

As for the previous years, the gold trade wavered as the gold prices ranged between $1,750 and $1,850 per ounce in 2021. Moreover, the Covid-19 brought down the gold prices by 5%, the highest tumble since 2015. Thus global market analysts predicted a bleak future, meaning that gold prices won’t increase much in 2022.

Why Were Predictions Gloomy For The First Quarter Of 2022?

Since the US Federal Reserve indicated three interest rate hikes in 2022 in December 2021, industry analysts, including the London Bullion Market Association, are pessimistic about the yellow metal’s future.

Market analysts predicted that these increases would restrict the amount of money flowing into the gold market in the future year.

Aside from the reasons above, they also stated that inflation and stock market investment growth are the justifications for the low gold anticipated prices in 2022.

Accordingly, the commodity experts concluded that the gold prices would likely decline in 2022 and range between $1,550 oz and $1,650 oz.


(Source: https://goldsilver.com/blog/gold-price-forecast-predictions/)

In the World Bank’s April report“Commodities Markets Outlook,” economists anticipated a fairly confident assessment of gold prices. A rise in US interest rates is expected to increase the demand for gold investments.

The report also states that though gold demand rose in 2021, the prices were far lower than pre-pandemic. A 4% fall in 2021 further declined to 5% in 2022.

The World Bank predicts that the gold investment will show an upward trend as gold prices will go down in 2025, but the prices will regain by 2030-2035. Interestingly, Morgan Stanley strategists forecast a similar trend in gold prices and estimate that the cost will get as low as $1600/oz. by the end of 2030.

The Gold Demand Trends In Different Sectors

Despite all gloomy predictions, the global gold market got off to a strong start in 2022. The gold demand increased by 34% in the first quarter. All segments of gold received a robust investment flow.

To date, gold is a precious metal and safe haven for tough times. Gold is considered the safest investment option during geopolitical unrest and economic unpredictability. Besides, investors buy large amounts of gold during inflation, increasing the demand and price due to the gold’s inherent value and limited supply. The 2011 economic crunch is the best example of economic instability and gold price hike, as the paper currency lost its intrinsic value, driving gold prices to as high as $1500 an ounce.

Exchange-Traded Funds (ETFs)

Safe-haven investors drove gold exchange-traded funds (ETFs) to record their most robust quarterly inflows since the third quarter of 2020. The 269-ton increase in holdings was due to a 226-billion-dollar investment.

Despite increases in nominal interest rates, the dollar’s weakness and the stock market’s performance were the key drivers of increased gold investment. Apart from the former, the first quarter saw high inflation and unexpected geopolitical events.

In Q1, bar and coin investment was 282 tonnes,20% lower than the exceptionally robust Q1′ 2021 but 11% higher than the five-year quarterly average.

Jewelry

The jewelry demand fell 7 percent year-on-year to 474tonnes in the first quarter. Weak demand in China and India was the primary factor in the fall.

Central Banks

Central banks added 84 tonnes of gold to their global reserves in the first quarter. Although net purchases grew by two-thirds from the previous quarter, they fell short by 29% compared to  Q1 2021.

There were roughly 31,695tonnes of gold reserves worldwide as of September 2021. The top ten central banks holding the most gold worldwide have remained relatively unchanged over the past few years. The US has the highest gold reserves at 8,133tonnes, making it the global leader. The Netherlands holds the most negligible gold reserves at 612tonnes among the top ten countries.

Technology

The technology industry got off to a strong start in 2022: demand for 82 tonnes was driven by a modest increase in the amount of gold used in electronic gadgets.

Market Situation in The First Quarter of 2022

The Q1 gold market shows a positive trend as gold transactions occurred uninterrupted at the beginning of the fiscal year. In addition, investors were active in two sub-markets: the physical gold (bullion and coins) and the paper gold (ETFs).

The latter attracted a hefty investment of $ 226 billion, reserving 3,823 tonnes in the gold mining stocks. While we see a y-o-y trend in gold prices,  its value remains unaffected over the course of years. High inflation and pandemic increased the gold prices, but lower interest rates and high ETF outflows brought sustainability to the gold market; thus, opening avenues for trade and investment.

Impact On the Prices

Even though the yellow metal isn’t used as a form of currency in many developed countries, it still impacts the value of those currencies. Throughout history, gold has been used directly or indirectly as a form of money, including gold coins and gold-standard paper money.

Furthermore, the high inflation and declining dollar value have further increased the demand and prices of gold. More and more people are buying gold to gain an economic shelter during uncertain times. And it doesn’t end here! The changing gold prices can also impact national economies with global trade and foreign currencies.

A country that exports gold or has gold reserves will experience higher economic stability and increasing fiat value, especially when the gold prices increase.

Why Did the Market Perform Well In The 1st Q of 2022?

The pessimistic prediction proved a false alarm when the price of yellow metal reached $2,053 per ounce on March 10 and 22. The trade experts stated that this rise mainly stemmed from the weaker US dollar, the Japanese yen, and high inflation.


(Sources: https://www.bloomberg.com/news/articles/2022-06-06/gold-s-haven-appeal-burnished-by-drumbeat-of-growth-warnings)

No one could have predicted in 2021 that a new uncertainty would derail the world’s economic recovery in the coming months.

The European market fears economic uncertainty due to the Ukraine war, accompanied by economic sanctions against Russia. The recurrence of COVID in China threatens to disrupt future supplies to European countries.

The ongoing uncertainty would encourage investors to invest in gold. The projected rigid monetary policies of the US Federal Reserve Bank (Fed), the Bank of England (BoE), and the European Central Bank (ECB) failed to inhibit the flow of investment into gold.

Moreover, US Federal Reserve Chairman Jerome Powell announced an interest rate increase at the FOMC gathering. The central bank will impose the rallied interest from March that had negatively impacted the stock market, including the price of gold.

Nick Santiago of InTheMoneyStocks thinks that the gold price will further plummet to approximately $1,450, thus, increasing the likelihood of more significant investments in yellow bars. However, he also expects that the gold prices will sky-rocket in the future due to market monopolization.

Many analysts cite the following reasons for their expectations of the continuity of brisk activity in the Gold Market:

  • If commodities prices rise in the wake of the conflict in Ukraine and supply disruptions in China. It will negatively impact global economic growth.
  • Fear of inflation, which lowers the currency’s purchasing power, will cause an increase in gold ETF inflows.
  • Gold-rich countries will mine more to compensate for Russia’s inability to sell its deposits owing to sanctions.
  • Russia and other governments will undoubtedly invest more in gold in the future to cushion their currency.
  • As Asia’s economy recovers, investors may seek gold due to a lack of alternatives.

Conclusion

The first three months of 2022 were a time of rising prices, disruptions in supply chains, and the Ukrainian war. The performance of gold in the first quarter defied the gloomy forecasts for the entire year.

Gold has become a shelter for investors due to recent events around the world and the status of the economy. For investors, the yellow mineral has a long-term historical significance.

Investors have a greater need for gold as a store of value. There is likely to be a persistently high interest in making financial investments in it. It is also one of the best substitutes for paper money during high inflation and geopolitical unrest.

Gold price (XAU-SEK)
25971,40 SEK/oz
  
+ 371,90 SEK
Silver price (XAG-SEK)
314,98 SEK/oz
  
+ 12,29 SEK

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