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What happened in the gold market in 2022?

Published by Karl Martin Karus in category Articles on 18.01.2023
Gold price (XAU-SEK)
25359,90 SEK/oz
+ 304,00 SEK
Silver price (XAG-SEK)
324,47 SEK/oz
- 1,35 SEK

Last year was highly volatile in the gold market. After a sharp rise at the beginning of the year, there was a rapid decline. While gold ended the year slightly in the negative in dollars, it rose 7% in euros. Gold was also able to outperform the stock and bond markets. Three major themes shaped the narrative in the past year – the action of central banks, inflation, and the war in Ukraine.

Perceptions primarily influence monthly gold prices in financial markets and investment funds, which we will discuss further below. Long-term money printing, the current monetary system, history, and long-term inflation and commodity trends are not considered. The following analysis is limited to a one-year horizon.

The first quarter – Q1

As the world’s economies recovered from the pandemic in early 2022, Russia’s attack on Ukraine created global uncertainty, which aided gold’s performance in the year’s first quarter.

As a result of the war in Europe, the gold price shot up and touched the previous all-time high (August 2020) area 2075 USD / oz. Quickly after, the gold market started to stabilize, and the gold price started to drop.

Interestingly, while the war had a short-term impact on the gold price, it had a steeper impact on gold production.

“Russia’s invasion of Ukraine and the subsequent sanctions have meant that miners operating in Russia have had issues getting financing and equipment from western sources,” said Adam Webb, director of mine supply at Metals Focus.

Higher overhead costs related to energy and transport also weigh on gold miners globally and in the Russian region. “This has impeded Russian gold production, and we expect a 30 tonne (9 percent) year-on-year drop in output this year,” he said.

He also expects global gold mining production to rise 1% year-on-year.

The second quarter – Q2

Gold was again under pressure as central banks began to raise interest rates quickly due to high inflation. Higher interest rates, in turn, drove up the dollar and bonds yield, which had a depressing effect on gold.

As gold declined below US$1,800, US inflation reached a four-decade high of 9.1 percent in June.

The third quarter – Q3

Gold reached its annual low during the rapid rise in interest rates, as the dollar rose to its highest level in more than 20 years.

Despite a sharp decline in overall investment demand, Gold demand increased by 28% year on year in the September quarter. Although bar and coin purchases increased by 36 percent, exchange-traded funds (ETFs) experienced more outflows.

On the other hand, demand for bars and coins had already surpassed 880 metric tons for 2022, the highest level since 2013. Investors’ reaction to inflation appears to be the steady increase in demand for bars and coins.

The fourth quarter – Q4

The dollar began to depreciate, and expectations of higher interest rates became more cautious. Gold prices reached their highest level in the last days of the year.

Last year, gold prices fell 0.3 percent in dollars and closed the year at $1,822 per ounce. The price of silver rose 2.6 percent to $23.9 per ounce. In euros, the price of gold rose 7 percent to €1,699 per ounce. In British pounds, the price of gold rose 13 percent to £1,507.

Gold still managed to show better returns than the S&P 500, the US’s largest stock index, which fell almost 20 percent, and the prices of major sovereign bonds were also falling (when bond prices fall, their yields rise and vice versa). Gold outperformed copper and palladium but was below both silver and platinum.

Ukraine War Brought Gold Close to Record

The price peak last year was achieved in the spring – on March 8, the price of gold closed at $2,050 per ounce. The sharp price increase in February and March can be attributed to the war in Ukraine and the acceleration of inflation. It was just 13 dollars away from the 2020 August price peak.

In March, US annual inflation had risen to 8.5 percent, the highest level since the beginning of the 1980s. In Europe, inflation reached 7.4 percent at the same time. The war in Ukraine also increased the entire commodity market, increasing gas, oil, and cereals prices. Higher inflation and the rapid rise in commodities boosted gold prices.

After that began a more than six months of depreciation, which brought gold prices to $1,615 per ounce by the end of September, the lowest level since April 2020. The leading causes were the rapid rise of the dollar index (DXY) and the aggressive interest rate increase launched by the Federal Reserve. The dollar index measures the performance of the American currency against the six major rivals. It reached its highest level in more than 20 years at the end of September

The Rise of the Dollar Behind the Interest Rate Increase

The euro makes up the most significant weight in the dollar index. In September, the euro parity (1:1 rate) with the dollar fell, which last happened in the early 2000s. Behind the rapid rise of the dollar was the aggressive interest rate increase of the Federal Reserve and the war in Ukraine, and the energy crisis that hit Europe. When the dollar rate falls, gold prices become cheaper for users of other currencies, increasing demand.

While the base interest rate set by the Federal Reserve was still 0.5 percent in April, it had been raised to 4.5 percent by the end of the year. The last time the central bank raised interest rates so quickly was during the period of fast inflation in the 1970s – that period was also characterized by an energy crisis that arose from the fact that the OPEC countries refused to sell oil to the US.

Higher interest rates have caused bond yields to rise rapidly this year. While the yield on US 10-year bonds was below 2 percent in March, it rose to 4.5 percent in the fall. Now the yield has fallen slightly and is trading at 3.8 percent. Higher bond yields increase the opportunity cost of gold – if more interest is paid on bonds, more investors will want to buy them instead of gold.

As the year drew to a close, gold sparkled.

The gold’s late summer dip acted as a strong support point, bouncing back three times, the second time in October and the third time in early November, followed by a quick climb in price.

A couple of days before the end of the year, the price of gold reached $1,833 per ounce, the highest level in the last six months. The end-of-year rally was primarily helped by the decline of the US dollar and expectations that the Federal Reserve would be slowing down its rate of interest hikes.


Gold price (XAU-SEK)
25359,90 SEK/oz
+ 304,00 SEK
Silver price (XAG-SEK)
324,47 SEK/oz
- 1,35 SEK

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