In the second quarter of the year, central banks and investors showed a decline in their demand for gold due to various factors, according to the World Gold Council. High gold prices, rising interest rates, and macroeconomic headwinds were cited as the reasons behind this struggle.
The industry body’s quarterly report revealed that overall gold demand dropped by 2% compared to the previous year, amounting to 921 metric tons. This decline was primarily driven by a decrease in central bank demand and the failure of expected investor demand to materialize. It is also a significant decrease from the first quarter, where 1,141.5 tons were purchased.
Specifically, central bank buying experienced a whopping 35% decline compared to the previous year, amounting to 102.9 tons. This figure also represents a 63% decrease from the first quarter when 284 tons were bought.
Krishan Gopaul, Senior Analyst at the WGC, attributed much of this decline to Turkey. He stated that Turkey became a net seller of gold in April and May, partially due to a partial ban on selling gold following an earthquake on February 6. However, demand increased during this period and strengthened further during the elections in May. To bridge the demand gap, the central bank sold some of its reserves. By June, Turkey had become a net purchaser once again. Gopaul remains optimistic that Turkey will continue to be a net purchaser throughout the year.
Despite this decline, central bank buying in the first half of the year reached a record high of 387 tons, with the People’s Bank of China accounting for 103 tons of this total.
Exchange-traded funds witnessed 21.3 tons of outflows in the second quarter, compared to 28.7 tons in the first quarter. However, over-the-counter purchases remained strong at 334.5 tons during the second quarter, showing an increase from 232.5 tons in the same period last year. Overall investment demand rose by 20% compared to the previous year, totaling 256.1 tons.
Gold Demand and Prices in 2022
The World Gold Council (WGC) has provided insights into the demand and prices of gold for the year 2022. Initially, the WGC expected strong demand for exchange-traded funds (ETFs) and over-the-counter (OTC) investments, with the belief that high interest rates would not impede gold investors and that slower economic growth would drive the need for gold as a hedge.
However, this anticipated scenario did not unfold as expected, particularly in the case of ETFs. The report attributes this to the resilient U.S. economy and robust equity markets. As a result, the WGC predicts that demand for gold will remain lackluster in the second half of the year if the current status quo continues.
Nevertheless, there has been a consistent demand for OTC investments, allowing the WGC’s forecast for overall demand to remain intact. Factors contributing to this include anecdotally reported restocking of bullion banks in China, inflows from India, and a shift from ETFs to vaulted demand in Turkey.
Bar and coin demand for gold has shown a 6% increase compared to the previous year, indicating consumer concerns about inflation. Individuals who are worried about their personal finances and seek assets that hold value over time find gold more attractive in such circumstances.
In terms of gold jewelry demand, there has been a 3% increase, reaching 476 metric tons. Surprisingly, this growth occurred despite high prices for the precious metal. The rise in demand was largely driven by Chinese buyers after the Covid-19 lockdowns. Indian demand, on the other hand, remained more subdued due to the elevated price environment.
The average price of gold during the second quarter was $1,976 per troy ounce, representing a 6% increase compared to the previous year and a 4% increase over the previous record set in the third quarter of 2020.
Gold supply also experienced a notable increase, rising by 7% to reach 1,255.2 tons, with mine supply accounting for 923.4 tons.
Overall, despite certain deviations from initial expectations, the global gold market has demonstrated resilience and interesting dynamics in the face of various economic factors. The WGC’s observations shed light on the complex interplay between market conditions, investor sentiment, and consumer behavior.
