Demand for gold surged to its highest in additional than a decade in 2022, fuelled by “colossal” central financial institution purchases that underscored the protected haven asset’s attraction throughout instances of geopolitical upheaval.
Annual gold demand elevated 18 per cent final 12 months to 4,741 tonnes, the most important quantity since 2011, pushed by a 55-year excessive in central financial institution purchases, in line with the World Gold Council, an industry-backed group.
Central banks hoovered up gold at a historic charge within the second half of the 12 months, a transfer many analysts attribute to a want to diversify reserves away from the greenback after the US froze Russia’s reserves denominated within the forex as a part of its sanctions in opposition to Moscow. Retail traders additionally piled into the yellow metallic in a bid to guard themselves from excessive inflation.
Central financial institution purchases of gold hit 417 tonnes within the last three months of the 12 months, roughly 12 instances increased than the identical quarter a 12 months in the past. It took the annual whole to greater than double of the earlier 12 months at 1,136 tonnes.
Krishan Gopaul, senior analyst on the WGC, stated “colossal” central financial institution shopping for is a “large optimistic for the gold market”, even because the {industry} group predicted that it will be robust to match final 12 months’s purchases due to a decelerate in whole reserve progress.
“Since 2010 central banks have been internet purchasers of gold following 20 years of internet gross sales. What we now have seen not too long ago on this atmosphere is central banks have accelerated their purchases to a multi-decade excessive,” he stated. He added {that a} lack of “counterparty danger” was a key attraction of the metallic for central banks, in contrast with currencies underneath the management of international governments.
Solely a few quarter of the fourth-quarter central financial institution purchases have been reported to the IMF. Reported purchases in 2022 have been led by Turkey taking in virtually 400 tonnes, China, which reported shopping for 62 tonnes in November and December, and Center Jap nations.
Gold {industry} analysts broadly imagine the rest is accounted for by central banks and authorities companies in China, Russia and the Center East, which may embody sovereign wealth funds.
James Metal, a veteran treasured metals analyst at HSBC, stated that “portfolio diversification is the primary cause” for US dollar-laden central banks shopping for gold. He provides that “a key cause for selecting gold is that central banks are restricted in what property they’ll maintain, they usually could also be reluctant to decide to different currencies”.
Demand amongst retail traders for bar and cash additionally jumped to a nine-year excessive in 2022 above 1,200 tonnes with robust demand in Europe, Turkey and the Center East offsetting weak point in China the place patrons have been housebound by Covid lockdowns.
Gold costs slid from a file excessive final March above $2,000 to only above $1,600 per troy ounce in November as rising rates of interest led to outflows from gold-backed alternate traded funds equal to $3bn over the 12 months. Gold produces no yield, dulling its attraction to traders when rates of interest on low-risk bonds climb.
Nonetheless, demand from central banks and retail traders helped forestall the yellow metallic sliding additional and set the stage for a highly effective rally since November.
In these three months, gold has jumped virtually a fifth to $1,928 per troy ounce — its highest stage in 9 months — helped by the US Federal Reserve signalling that it will decelerate the tempo of charge hikes.
The WGC expects a revival in gold demand from institutional traders this 12 months as rates of interest in major economies strategy their peak, whereas falling inflation might damp demand for bars and cash.
Because of distinctive central financial institution shopping for and an anticipated return of inflows for gold-backed ETFs, UBS raised its year-end goal for the dear metallic to $2,100 per troy ounce, up from $1,850 beforehand.
