Gold demand surged to 11-year high on ‘colossal’ central bank buying read full article at

Ingots of 99.99 % pure gold are positioned in a workroom at Krastsvetmet treasured metals plant within the Siberian metropolis of Krasnoyarsk, Russia, January 31, 2023. 

Alexander Manzyuk | Reuters

Gold demand soared to an 11-year excessive in 2022 on the again of “colossal central bank purchases, aided by vigorous retail investor buying,” in keeping with the World Gold Council.

Annual gold demand jumped 18% to 4,741 tons (excluding over-the-counter or OTC buying and selling) throughout the 12 months, the most important annual determine since 2011, fueled by file fourth-quarter demand of 1,337 tons.

Key to the surge was a 55-year excessive of 1,136 tons purchased by central banks throughout the 12 months, the industry-backed group revealed, noting that almost all of those purchases have been “unreported.”

This marked a 152% enhance from 2021, when central banks purchased simply 450 tons of gold, and the World Gold Council attributed the spike to geopolitical uncertainty and excessive inflation.

“Central bank net purchases in Q4 totalled 417t, lifting H2 total buying to 862t. Echoing Q3, data for the final quarter of the year was again a combination of reported purchases and a substantial estimate for unreported buying,” the WGC mentioned.

“Should more information about this unreported activity become available, these estimates may be revised.”

Gold is getting more expensive for consumers, which could 'curb the rally': HSBC

Funding demand for gold elevated by 10% to 1,107 tons, whereas holdings of gold ETFs (exchange-traded funds) noticed smaller outflows in 2022 than within the earlier 12 months.

Jewellery consumption dropped 3% in 2022 to 2,086 tons, with a lot of the weak spot concentrated within the fourth quarter as gold costs rallied.

Complete annual gold provide inched 2% larger in 2022 to 4,755 tons, with mine manufacturing notching a four-year excessive of three,612 tons.

Central financial institution bulk shopping for

“This marked a banner year for central bank buying: 2022 was not only the thirteenth consecutive year of net purchases, but also the second highest level of annual demand on record back to 1950, boosted by +400t demand in both Q3 and Q4,” the WGC mentioned.

The group’s annual survey of policymakers revealed that the important thing drivers behind holding gold have been its “performance during times of crisis” and its “role as a long-term source of value.”

“It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers and at an accelerated pace.”

Nearly all of the central financial institution shopping for in 2022 got here from rising markets, with the Central Financial institution of Turkey the most important purchaser at a file 542 tons. China, India, Egypt, Qatar, Iraq, the UAE and Oman all considerably boosted their gold reserves over the 12 months.

‘It might be totally different this time’

Regardless of a tough backdrop of speedy hikes to rates of interest and a powerful U.S. dollar for a lot of the 12 months, the fourth-quarter resurgence was sufficient to see gold costs eke out a slight acquire for 2022, with a 3% quarterly acquire taking the valuable steel to a 0.4% annual enhance.

Gold sometimes weakens in occasions of rising rates of interest and a powerful greenback, partly as a result of it’s priced in U.S. {dollars} regardless of most demand originating from outdoors the U.S., Wells Fargo highlighted in a be aware final week. Which means that the buying energy of non-U.S. patrons is decreased and harms international gold demand.

Wells Fargo Head of Actual Asset Technique John LaForge additionally famous that since gold is a non-interest-bearing asset, it turns into much less enticing to institutional buyers who should buy Treasurys and different interest-bearing belongings when charges rise.

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Gold began 2022 properly, up 12% by way of March, however dropped off as soon as the U.S. Federal Reserve started aggressively mountain climbing rates of interest to rein in inflation, resulting in a stronger greenback and forming vital headwinds for the valuable steel.

The spot gold price is also up more than 5% so far in 2023, buying and selling at round $1,926 per troy ounce as of Wednesday morning. LaForge mentioned that whereas Wells Fargo at present holds a impartial view on treasured metals versus different commodities, the U.S. banking big doesn’t essentially anticipate poor efficiency.

Wells Fargo’s year-end goal vary stays $1,900 – $2,000, however LaForge mentioned “it may be different this time.”

“We may even need to increase our year-end 2023 target range should the U.S. dollar remain range bound and we gain confidence that rate hikes are near their end,” he added.

Gold turning into ‘very costly’ for shoppers

James Metal, chief treasured metals analyst at HSBC, mentioned rising costs may ultimately start to compress demand in 2023 as gold will get “very expensive for consumers,” particularly since round 70% of shopping for is concentrated in rising markets.

“On the ground buying — coins, bars, jewelry — is going to get increasingly expensive and this may very well at least curb the rally, so I would certainly be cautious, and HSBC’s camp is that the Fed will maintain rates and not cut them in the second half of the year,” he mentioned.

“If that is realized as 2023 unfolds then that could take some of the oxygen away from the gold market as well.”


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