World gold demand hit an 11-year high in 2022 as central banks gobbled bullion to battle inflation

• Gold demand hit an 11-year high in 2022 according to the World Gold Council
• It was fuelled in part by a 55-year record in gold buying by central banks
• WGC Regional CEO of APAC Andrew Naylor says robust gold demand is expected in 2023 depending on how global economic forces shift

Central banks are plunging hard into the massive pool that is gold markets, hitting a 55-year record in gold buying in 2022.

Bullion was a must-have item on the shopping list of reserve asset managers, with the new Gold Demand Trends Report from the World Gold Council showing central bank demand more than doubled to 1136t in 2022.

It came as global gold demand rose 18% to 4741t, the highest annual total since 2011, boosting a record fourth quarter where demand rose 17% YoY.

That provided a strong floor for gold demand despite pressure on the safe haven commodity from China’s Covid-induced lockdowns and US Fed interest rate rises.

Purchases by central banks in the fourth quarter alone reached 417t, bring total demand across the second half to more than 800t.

In response supply lifted 2% to 4755t, above pre-pandemic levels, with mined production rising to a four-year high of 3612t.

 

Emerging economies fuel central bank buying

While China’s lockdowns saw jewellery demand slide 3% to 2086t, 15% down in China, its reserve bank was a hefty buyer of gold.

Gold bars and coins were also strong in Europe and the Middle East, where demand lifted 42%, though demand overall was only up 2%, while investment demand rose more than 10%. Gold ETF holdings fell 110t, though that was lower than the 189t slide in 2021.

WGC regional CEO for APAC ex-China Andrew Naylor told Stockhead emerging economies were moving into gold in big numbers.

“We run an annual survey of reserve asset managers at central banks and their outlook for gold was positive,” he said.

“So it’s certainly in line with with that survey, and then the fundamental rationale for gold accumulation by central banks, geopolitical uncertainty, hedging against inflation, wealth preservation, all of that kind of stuff has been pretty acute over the last year.

“The big trend really since 2010, is that emerging market central banks have been the banks that are buying gold and there are two reasons for that really, one is that the emerging market central banks have the capacity to add to their reserves, there has been a lot of economic growth, tax receipts going up and all the rest of it.

“But also, in addition to that, the proportion of gold in the reserves of most emerging market central banks is quite low. So to get to an optimal gold allocation, they’ve been accumulating gold.”

The People’s Bank of China added 62t to its reserves in November and December, lifting its total gold reserves to more than 2000t in its first reported increase since September 2019.

The Central Bank of Turkey, facing a major inflation crisis, bolstered its reserves by 148t to 542t — its highest level on record.

While 2023 is unlikely to be as strong as 2022, Naylor said central banks were expected to remain net buyers of gold.

It doesn’t predict gold prices, but Naylor said the WGC expects demand from various sectors to be robust in 2023, with consumer demand from China likely to recover and institutional investment possible depending on how global economic conditions shake up.

“I think the big story now is just the greater uncertainty as to how soft or hard the landing will ultimately be,” he said.

“We’ve had some good news in some parts of the world where GDP growth figures have been revised up but others revised down.

“So there’s still a lot of uncertainty. In that kind of environment, we’d expect institutional interest in gold to pick up.”

Gold prices fluctuated in 2022, threatening all time highs on geopolitical uncertainty in the wake of Russia’s invasion of Ukraine before dropping to multi-year lows as the US Fed entered a cycle of rate rises.

Prices are up around 5.4% year to date to ~US$1920/oz, and while last year they were framed by pessimism around bullion as the hiking cycle took hold, a late year rally actually saw the precious metal hit an all time high yearly average price of US$1800/oz.

 

5 out of 7 ain’t bad

The WGC has now tracked trends in gold demand through its report for 30 years.

According to an overarching analysis, the WGC has found gold performed positively in five out of seven previous recessions, with rising prices representing a 5.8% annual growth rate over the past three decades.

“Over the past 30 years the gold price has increased more than six-fold, from around US$330/oz when GDT was first published to US$1,814/oz by the end of 2022,” the WGC said.

“With a 5.8% annualised return over the period, gold has outperformed cash, bonds and commodities.

“Gold has also maintained a very low average correlation to stocks, even rising in times of turmoil and performing positively in five out of the past seven recessions, helping investors to reduce their portfolio losses.”

Central banks sold out of gold heavily in the 1990s and 2000s after the collapse of the Gold Standard.

Australia famously expunged around two-thirds of its gold reserves over six months in 1997, the RBA receiving $2.4 billion after whittling down its holdings from 247t to just 80t at an average price of only $450/oz.

Gold now attracts over $2700/oz in Aussie terms.

The worm has turned for bullion, with rising prices and geopolitical uncertainty encouraging central banks to add 6,815t between 2010 and 2022, much of it in emerging nations.

“And our most recent central bank survey shows that this appetite for gold continues; gold’s performance in times of crisis, its characteristic as a store of value over the long term and its high liquidity were all key reasons for central banks to hold gold,” the WGC says.

It follows trends that have seen fabrication for jewellery and technology, the main drivers of gold demand 20-30 years ago, lose market share to investment. They now make a healthy but smaller 44% share of net annual demand.

At the same time production has increased from 2270t in 1992 to 3612t at the end of 2022, with diversifying production aiding gold’s status as a low volatility asset given that unlike lithium, rare earths, iron ore and nickel production and consumption is not centralised in any one country.

 

Meanwhile in Australia

According to the WGC, Australian consumer demand rose 8% to 30.9t in 2022, with a 21% drop in bar and coin demand in the fourth quarter behind a 6% YoY fall in the final three months of the year.

Jewellery demand recovered 22% off a low base in the December quarter, with demand for gold in jewellery up 30% across 2022 off a low, Covid-infected base in 2021.

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