Gold demand softened in Q2. Despite Q2 weakness, strong first quarter ETF inflows fuelled a notable H1 recovery Gold demand (excluding OTC) was 8% lower y-o-y at 948t. Combined with Q1 this took H1 demand to 2,189t, up 12% y-o-y.
As India’s demand for gold outpaces its domestic mine supply, demand is fulfilled by imports as well as gold recycled locally. Recycling in India is a Rs440bn industry making up 11% of the average local annual supply.
Throughout April, gold remained among the best performing assets in 2022 up 5% in US dollar terms – yet it ended the month 1.6% lower at US$1,911/oz.
Gold market sees solid start to 2022
Q1 gold demand was 34% above Q1 2021, driven by strong ETF inflows. In a quarter that saw the US dollar gold price rise by 8%, gold demand (excluding OTC) increased 34% y-o-y to 1,234t – the highest since Q4 2018 and 19% above the five-year average of 1,039t.
India has a long history of mining gold, but at a low level: 2020 gold mine production was just 1.6 tonnes. Legacy processes are in part to blame: investment in the sector has been discouraged by unwieldy processes.
Geopolitical crisis takes centre stage in February
Strong Q4 lifts full year demand 10%
Annual demand recovered across virtually all sectors – the notable exception being ETFs, which saw net annual outflows
Gold benefits from diverse sources of demand: as an investment, a reserve asset, jewellery, and a technology component. It is highly liquid, no one’s liability, carries no credit risk, and is scarce, historically preserving its value over time.
Gold may face similar dynamics in 2022 than those from last year as competing forces support and curtail its performance.
The shift to risker and less liquid assets strengthens the case for an allocation to gold, given its unique combination as a highly liquid, low-volatility asset.