Review and outlook

28 April, 2022

Top level summary

In Q1 2022

  • The average US$ gold price in Q1 was 5% higher both q-o-q and y-o-y. An uneasy environment of persistently high inflation and elevated geopolitical risks drove investors to gold, helping to propel prices higher
  • Retail investment was healthy compared with long-term averages and ETF inflows were notable, but so too was the absence of both futures and OTC demand, which suggests that investor participation in gold is not overcrowded and that ownership of gold is not over-extended.
  • Weaker jewellery demand and softer net central bank buying reflected gold’s diverse uses: a fall in demand in some areas during the quarter met with a rise in others
  • Supply saw healthy growth in the first quarter: strong mine production and resurgent recycling lifted total supply by 4% y-o-y. 

Looking ahead

  • The general macro outlook for 2022 shows starkly different potential outcomes: on the one hand, a material worsening of economic and market conditions if the war in Ukraine persists, versus, on the other, a significant improvement in the event of a geopolitical resolution and resumption of the post-COVID recovery. This leads us to a broad range of potential outcomes for demand in 2022. 
  • On balance, the strong start to the year for investment and the negative economic ramifications of persistently high inflation and war in Ukraine make us confident that investment will be higher this year than last.
  • Consumer demand is likely to be pressured by rising prices and widespread economic slowdown. The weakness in China’s Q1 demand means that a sizeable improvement in global full-year jewellery demand will likely be tough to achieve. However, overall jewellery demand is still recovering from COVID-19 lockdowns and this could translate into some support for y-o-y growth
  • We see a continuation of net central bank buying in 2022, albeit at a lower level than in 2021
  • Mine supply growth is expected to be solid once again in 2022, with a negligible contribution from hedging.
  • Recycling is expected to rise in 2022, driven by weaker GDP growth and the potential for prices to rise further.  

Quarterly review

The gold price returned 8% in Q1 – equivalent to a 5% increase in the quarterly average price both (q-o-q and y-o-y) which better reflects the demand and supply dynamics over the period. Persistently high inflation and geopolitical risks, which have dominated headlines, more than offset the drag from higher nominal rates, according to our analysis.

Q1 flows into ETFs (+269t) have eclipsed the outflows seen in 2021 and matched the relatively elevated levels seen in Q3'20, when the gold price rallied sharply to record highs. However, this activity has not – as far as we can tell – been mirrored in futures or the OTC market. This suggests that had demand been equally strong across all segments of investment demand, prices might be higher still, given the fundamentally supportive environment for gold. It also underlines that gold is currently neither overbought nor over-owned.

Bar and coin investment, although healthy, failed to match the multi-year highs reached in Q1 2021 . While the US and Europe were both strong, China was key to explaining the y-o-y decline, as were Turkey and Japan, where currency weakness took local prices to record levels and sparked profit-taking. 

Gold jewellery demand in Q1 was 7% lower y-o-y, with much of that decline coming from China and India; excluding those two dominant markets demand was 7% higher y-o-y. Demand continued to witness broad-based recovery in line with continued lifting of lockdown restrictions, although relatively high gold prices were a limiting factor, particularly as consumers face increasing pressure on disposable incomes from soaring general price levels.

Buying among central banks added 84t to Q1 total demand, a doubling of the net buying seen in the previous quarter. Buying continues to be concentrated among emerging market banks, with the trend being for a small number of sizable purchases each quarter.

Full year outlook


Mixed prospects for investors and consumers in 2022

Mixed prospects for investors and consumers in 2022

Expected y-o-y tonnage change in annual demand and supply, 2022 vs. 2021*

Mixed prospects for investors and consumers in 2022
Expected y-o-y tonnage change in annual demand and supply, 2022 vs. 2021*
* Range estimates are generated by a combination of inputs our independent analysis, and macro global outlook. Source: World Gold Council

Sources: World Gold Council; Disclaimer

*Range estimates are generated by a combination of inputs including our independent analysis of the gold market, consensus market expectations for the global economy and Metals Focus forecasts, The width of the range reflects our confidence in the outlook, while the ratio of one tail to the other captures whether we skew towards upside or downside risk to our view.

Investment: significant upside potential 

The Ukraine-Russia war and the narrative shift from transient to more persistent high inflation has seen a positive swing in many investors’ perceptions of gold. But elevated uncertainty about what the rest of 2022 might bring makes estimating investment demand unusually difficult and perhaps more binary than in previous years. 

If the current geopolitical and high-inflation narrative lingers – making a stagflationary shock more likely – then investment demand should remain well supported. But any resolution to the crisis and perhaps a soft economic landing amidst higher interest rates would put downward pressure on investment demand in some regions as the market resumes its focus on economic recovery and higher interest rates. 

For this reason, our range of potential outcomes for 2022 investment demand is wide. However, the strong start to the year and the lack of participation so far from both OTC and futures markets leads us to believe that there is scope and room for investment to be positive this year.

Jewellery and technology: flat to slightly weaker

Despite risks to economic growth and higher prices, we expect jewellery demand to be flat y-o-y in 2022. Ongoing widespread recovery from COVID-19 lockdowns in 2020-21 will be supportive, but the impact of renewed restrictions in China on Q1 demand add to the downside risk to our expectations for the full year. Globally, continued price strength and a worsening economic environment are likely to restrict the ability for demand to recover to historical average levels. 

Central banks: net positive but lower on the year

Central banks are set to continue as net buyers albeit at a slower pace than last year. We attribute continued net buying to the results of our survey that find overwhelming support for holding gold in crises. But we caution that active management of reserves can also result in selling during crises to take advantage of gold’s abundant liquidity.

Recycling: likely higher

Our models of recycling suggest that higher prices and lower economic growth are both positive drivers, as long as near-market supply is sufficient. Should prices keep rising and economic weakness persist, as it has done in China which is a key recycling hub, then recycling is set to be materially higher in 2022

Mine supply: positive momentum

Continued brownfield ramp-ups, high grading and China’s return to the market have seen aggregate supply start the year on the front foot. Barring unforeseen circumstances, it is likely that mine output growth could exceed last year’s, and be not far off levels seen in 2016 and 2011.

Supply/demand (tonnes)

Tonnes Q1'21 Q2'21 Q3'21 Q4'21 Q1'22   Q1'22 vs Q1'21,
% change
Mine production 834.6 875.6 937.4 933.2 856.5 3%
Net producer hedging 4.8 -15.9 -12.4 2.8 -10.3 - -
Total mine supply 839.4 859.7 925.0 936.0 846.1 1%
Recycled gold 269.3 279.0 295.6 299.5 310.5 15%
Total Supply 1,108.8 1,138.7 1,220.6 1,235.5 1,156.6 4%
Jewellery fabrication 538.7 456.5 515.0 719.2 517.8 -4%
  Jewellery consumption 509.3 434.7 473.2 716.8 474.0 -7%
  Jewellery inventory 29.4 21.7 41.8 2.4 43.7 49%
Technology 81.0 79.8 83.4 85.9 81.7 1%
  Electronics 66.2 66.2 69.0 70.6 67.0 1%
  Other Industrial 11.9 10.7 11.6 12.5 12.0 1%
  Dentistry 2.9 2.9 2.8 2.7 2.7 -7%
Investment 181.8 286.2 233.9 304.4 550.7 203%
  Total bar & coin demand 351.8 245.4 260.4 322.3 281.9 -20%
   Physical Bar demand 231.2 169.8 177.5 220.8 179.3 -22%
   Official Coin 102.0 62.3 59.0 72.6 84.6 -17%
   Medals/Imitation Coin 18.7 13.3 23.9 28.9 18.0 -3%
  ETFs & similar products -170.0 40.8 -26.5 -17.9 268.8 -
Central banks & other inst. 117.5 206.4 90.6 41.2 83.8 -29%
Gold demand 919.1 1,028.9 922.9 1,150.8 1,234.0 34%
OTC and other 189.7 109.8 297.7 84.7 -77.4 -
Total Demand 1,108.8 1,138.7 1,220.6 1,235.5 1,156.6 4%
LBMA Gold Price (US$/oz) 1794.01 1816.48 1789.52 1795.25 1877.16 5%

Source: Metals Focus; Refinitiv GFMS; ICE Benchmark Administration; World Gold Council

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