A 3% gain in December, owing to a weaker dollar, took the value of gold to $1 814/oz, resulting in a year-on-year gain of 0.4% – something the World Gold Council (WGC) says looked unlikely to many just two months ago.
The WGC says 2022 provided a “textbook” example of how diverse sources of demand and supply can counterbalance one another and provide gold with its uniquely stable portfolio-additive performance.
In addition, the WGC says gold’s resilience in 2022 was a result of its often ignored multifaceted sources of demand and supply.
Institutional investing demand, such as exchange-traded funds (ETF), over-the-counter (OTC) and futures, was weak but retail demand was strong and central bank net buying performed even better, the WGC reports.
As such, gold’s volatility remained close to its long-term average of 16%.
However, as a result of these factors, many questioned the WGC on why gold did not perform better than it did, taking into account multi-decade-high inflation.
The WGC responds that two factors played a major role, the first being long-term inflation expectations remaining well anchored in 2022. This, the WGC says, suggests that investors were confident that central banks could control inflation.
The second factor was that institutional and professional investors were likely more interested in how they are compensated for inflation, and hence taking more cues from monetary policy, as opposed to inflation developments.
Counteracting this institutional malaise, the WGC points out that retail investors were significant buyers of gold in 2022, with demand for the first nine months of the year having reached an eight-year high.
The WGC’s analysis suggests that retail investors, especially in emerging markets, which make up about 60% of the sector, are more wary of inflation, as well as the level of prices, taking into account low access to protection.
Particularly for non-US investors, gold proved a lucrative investment in 2022, gaining well in other local currencies.
In Europe and the US, retail investment stayed buoyant despite inflation and heightened geopolitical risk.
“Arguably the most surprising development in the gold market in 2022 was the level of demand from central banks,” the WGC says in a statement.
By the end of the third quarter of 2022, 673 t of gold had reportedly been added to reserves – a historical high – while in October and November, gold additions continued but at a slower pace.
SOURCE: MINING WEEKLY