By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, February 1, 2023
Colossal central bank purchases, aided by vigorous retail investor buying and slower gold ETF outflows, lifted annual demand of the yellow metal to an 11-year high
Annual gold demand (excluding OTC) jumped 18% in 2022 to 4,741t, a record since 2011 – a time of exceptional investment demand, reported on January 31 the World Gold Council. The strong full-year total was aided by record Q4 demand of 1,337t of gold.
Gold jewellery consumption softened a fraction in 2022, down by 3% at 2,086t. Much of the weakness came through in the fourth quarter as the gold price surged amid persistant high inflation since summer 2021 and the geopolitical crisis in Europe.
Investment demand for gold (excluding OTC) reached 1,107t (+10%) in 2022. Demand for gold bars and coins grew 2% to 1,217t, while holdings of gold ETFs fell by a smaller amount than in 2021 (-110t vs. -189t), which further contributed to total investment growth. Quarterly fluctuations in OTC demand largely netted out over the year.
A second consecutive quarter of huge central bank demand (417t) took annual buying in the sector to a 55-year high of 1,136t, the majority of which was unreported.
Demand for gold in technology saw a sharp Q4 drop, resulting in a full-year decline of 7%. Deteriorating global economic conditions hampered demand for consumer electronics.
Total annual gold supply increased by 2% in 2022, to 4,755t. Mine production inched up to a four-year high of 3,612t.
The World Gold Council reported that 2022 saw a record annual average LBMA Gold Price PM of US$ 1,800/oz. The gold price closed the year with a marginal gain, despite facing notable headwinds from the strong U.S. dollar and rising global interest rates. Although the Q4 average price was slightly weaker both q-o-q and y-o-y, a sharp November rally was followed by continued recovery throughout the closing weeks of the year.
Brisk retail investment lifted gold bar and coin demand to a nine-year high. Strong growth in Europe, Turkey and the Middle East offset a sharp slowdown in China, where demand was affected throughout the year by COVID-related factors. High and persistent annual inflation in the Euro area (+8.5 percent in January 2023 and +9.2 percent in December 2022), European Union (+10.4% in December), Turkey (+64.3% in December), United Kingdom (+10.5% in December), Canada (+6.3% in December) and the United States (+6.5% in December) has fuelled the rise in gold prices.
Read also : How to invest in gold
Indian gold demand remained robust compared with longer-term pre-pandemic levels. Despite a fairly soft start to the year, Indian consumer demand recovered and only just fell shy of the strong levels of demand seen during 2021. Continued recovery from COVID-19 boosted yearly comparisons, although the sharp local price rally choked off demand in the closing weeks of December. India is one of the largest consumers of gold in the world, producing almost no gold itself.
Total gold supply halted two years of successive declines in 2022, lifted by modest gains in all segments. Full-year mine production grew 1% but failed to match its 2018 peak. Annual recycling supply made only marginal gains, despite strong local currency price rises in many markets.
Predictions for 2023
Gold and silver prices are expected to rise in 2023 amid a weakening U.S. dollar and expected easing of the Federal Reserve’s monetary policy by the end of 2023, after a campaign of rate hikes started in March 2022.
The London Bullion Market Association’s (LBMA) annual survey of 30 analysts indicated cautious optimism for these metals. Experts expect gold and silver to average 3.3% and 8.8% higher by the end of this year compared to 2022.
Among the key factors that could trigger a rise in prices, 43% of respondents named the decline in the US dollar and the coming ease of the Fed’s monetary policy, while 14% – inflation, and 11% – geopolitical factors.
Investors understood that the Fed doest not fear to provoke a recession in an attempt to lower a strong inflation it caused with Quantitative easing and low rates for more than a decade (printing billions of paper currency out of thin air since 2008).
Extensive monetary policies cause inflation and assets bubbles. Boosted by large amount of credit granted by commercial banks, stocks and housing prices steadily grow in quantitative easing times. This only adds pressure on the finances of middle class households.
All eyes are now on U.S. consumer price index (CPI) report due on February 14, 08:30 AM. Inflation in the U.S. for December 2022 was officially at +6.5%, after +7.1% in November. Investors and central bankers hope that CPI report for January 2023 will show a even lower inflation.
Other data boost the gold prices growth. Indeed, central banks globally have been accumulating gold reserves since 2020 at a furious pace last seen 55 years ago when the U.S. dollar was still backed by gold. According to the World Gold Council (WGC), central banks bought a record 399 tonnes of gold worth around $20 billion in the third quarter of 2022 and 417 tonnes in Q4 2022. This put the central banks purchases of gold in 2022 at 1,136t, the majority of which was unreported.
In addition, BRICS countries are working on a new reserve currency, which could be based on a currency baskets (ruble, renminbi, ruppee, real and rand) mixed with commodities prices such as oil, gas and precious metals. All the BRICS countries (Brazil, Russia, India, China and South Africa) are large producers of gold and their central banks hold hundreds of tons of the yellow metal.
While inflation in the U.S. has remained high since summer 2021, there are growing signs that high interest rates are beginning to slow the economy, the housing market is slumping, and mortgage rates nearly doubling, after the Fed carried out aggressive hikes.
Gold traders agree that the long-term gold trajectory is up. The price of the yellow metal will continue growing in 2023, because of persistent inflation, war in Ukraine, recession in Europe and the U.S., as the central banks cannot anymore raise interest rates without collapses of heavily indebted states, corporations and real estate markets.
Some traders expect gold price to rise to $1,980 an ounce in early 2023.
The U.S. Federal Reserve will have no choice but to pivot and lower interest rates in 2023 (in Q2 or Q3), in order to reduce the impact of the coming recession.
Thus, we expect gold price to cross $2,000 in Q2 and $2,100 in Q3. Gold prices could hit $1,980 a troy ounce in early February after the U.S. Federal Reserve announced an interest rate hike by 0.25 percentage point. That takes it to a target range of 4.5%-4.75%, the highest since October 2007.
The move marked the eighth increase in a process that began in March 2022.
As expected, gold price jumped to $1,951 per troy ounce on Wednesday February 1st, and gold futures hit $ 1,965
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© Copyright 2023 – Swann Collins, investor, writer and consultant in international affairs.