Global Q1 gold demand up 34% amid geopolitical and economic uncertainty

Demand rose to 1,234 tonnes, the highest since the fourth quarter of 2018, World Gold Council says

Demand for gold bars and coins in the first quarter was 20 per cent lower at 282 tonnes, compared with the first quarter of 2021. Reuters

Global gold demand surged 34 per cent in the first quarter of 2022, driven by strong exchange-traded fund (ETF) inflows, as investors boosted their investments in safe-haven assets amid heightened geopolitical and economic uncertainty, according to the World Gold Council.

ETFs are a basket of securities consisting of stocks, bonds, commodities or other financial assets that track global markets.

Gold demand in the three months to the end of March jumped to 1,234 tonnes — the highest since the fourth quarter of 2018 and 19 per cent above the five-year average of 1,039 tonnes — as investors sought a safe haven in view of the Ukraine conflict and inflationary pressures, the trade body said in a report.

“The first quarter of 2022 has been a turbulent one, marked by geopolitical crises, supply chain difficulties and surging inflation,” said Louise Street, senior analyst, Europe, Middle East and Africa, at the World Gold Council.

“These global events and market conditions have solidified gold’s status as a safe-haven holding, not just for investors, but also for retail consumers thanks to its unique position as a dual-natured asset class.”

Geopolitical and economic uncertainty is mounting across the globe following Russia’s invasion of Ukraine, with inflation also rising due to higher commodity prices and supply chain disruptions.

Earlier this month, the International Monetary Fund lowered its 2022 growth forecast to 3.6 per cent from its previous estimate of 4.4 per cent in January.

The price of gold briefly touched $2,070 per ounce in March as investors boosted their investments in the precious metal. However, it has since fallen and was trading 0.09 per cent lower at 1,884.34 per ounce at 12.01pm UAE time on Thursday. A stronger dollar amid the tightening of monetary policy by the US Federal Reserve is also weighing on the gold price.

The average US-dollar gold price in the first quarter was 5 per cent higher both on a quarterly and an annual basis, the report said.

Gold ETFs had their strongest quarterly inflows of 269 tonnes since the third quarter of 2020 in the first three months of this year, more than reversing the 174 tonnes annual net outflow from 2021, according to the report.

Meanwhile, demand for gold bars and coins during the quarter was 20 per cent lower at 282 tonnes compared with the first quarter of 2021, but 11 per cent above its five-year quarterly average. Renewed lockdowns in China to prevent the spread of the pandemic and high prices in Turkey amid a weakening of its currency weighed on demand during the quarter, the report said.

Gold jewellery demand also fell 7 per cent year-on-year to 474 tonnes, largely due to softer demand in China and India, which together tend to generate between 55 per cent to 60 per cent of total quarterly jewellery consumption.

Rising gold prices globally affected purchasing activity in India, while demand in China was hit due to Covid-19 movement restrictions, according to the report.

China, the world’s second-largest economy, is experiencing a wave of Covid-19 infections and has introduced strict movement curbs in Shanghai, its largest city, to control the spread of the pandemic. New cases have also risen in China’s capital Beijing as the government continues to carry out mass testing to isolate every infected person as part of its “zero-Covid” strategy.

Jewellery demand in the Middle East, on the other hand, extended its recovery from the pandemic-induced slump of 2020, reaching its highest level since the first quarter of 2019. Regional demand was 18 per cent higher at 47 tonnes, with the UAE and Iran contributing most to the demand growth.

In the UAE, jewellery consumption jumped 50 per cent annually to 12.5 tonnes. This was the strongest quarter since the second quarter of 2017, “as demand benefited from attendees attracted by Dubai’s Expo, while the lifting of all Covid restrictions and higher energy prices buoyed domestic consumer sentiment”, the report said. Demand in Iran was 41 per cent higher at 8.4 tonnes.

Central banks also boosted purchases of gold amid the global uncertainties. Net buying by central banks more than doubled from the previous quarter, adding over 84 tonnes to official gold reserves during the first quarter of 2022, with Egypt emerging as the biggest buyer. However, demand fell 29 per cent compared with the same quarter last year.

Demand for gold in technology rose 1 per cent annually to hit a four-year high of 82 tonnes, the highest total for a first quarter since 2018, according to the report.

“Given the current market dynamics, investment demand is expected to remain strong as the combination of high inflation and heightened geopolitical tensions will likely fuel demand for gold among investors,” Ms Street said.

“On the other hand, consumers are facing the global cost of living crisis, meaning many will reconsider how they spend their money. While consumer demand has been recovering from Covid-inflicted weakness, continued growth in jewellery demand could be stifled by rising costs and a general economic slowdown.”

Total gold supply increased 4 per cent on the year, driven by strong mine production, which hit 856 tonnes, the report said. Recycling of gold also rose 15 per cent, reaching 310 tonnes in response to higher gold prices.

Mine supply, as well as recycling of gold, is expected to continue increasing in 2022, driven by weaker economic growth and the potential for gold prices to rise further, the report said.