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.
With very little mining and modest levels of recycling, India is heavily reliant on bullion imports to meet its domestic demand. Indian official imports have continued to grow despite high import duty with official imports averaging 760t over the last decade.
Gold rose 2% in November based on the LBMA reference price, rallying early in the month before giving up most of those gains in the following weeks.
Gold has long been valued for its distinctive investment benefits. Although gold is no longer the basis of the international monetary system, its status as a bastion of stability has endured, a role which has become ever more important in today’s uncertain environment.
Together with our partners at OMFIF, we have written a report on the development of central bank digital currencies (CBDCs) and the implications for the gold market. CBDCs can potentially enable a wide range of new features. Money can become programmable, allowing policymakers to incentivise certain spending behaviours that can optimise economic impact or address social concerns. The trackable nature of CBDCs can also help to deter financial crimes. The ability to easily deploy “helicopter money” may also spark concerns about inflation.
Gold rose slightly in October, despite a risk-on environment and increases in short-term bond yields
Q3 gold demand down 7% to 831t
ETF outflows outweighed continued recovery in other sectors
Econometric analysis shows that rising income is the most powerful driver of Indian gold demand in the long term. This bodes well for gold demand as the economy is set to benefit from a demographic dividend: the IMF forecasts per capita GDP growth of 23% between 2022 and 2026.
We believe that mandatory hallmarking will be positive for India’s gold market, improving transparency and giving consumers more confidence in the purity of the gold they buy.