In the fourth quarter of 2021, gold demand rose to 1,147 tons, the highest level since the second quarter of 2019, and represents an increase of almost 50% year on year, according to the WGC survey.
Demand for gold bars and coins was 1,180 tons, up 31% to an 8-year high. Private investors have been looking for safe investments amid rising inflation and ongoing economic uncertainty as a result of the coronavirus crisis.
In 2021, according to the World Gold Council, the outflow of funds from physical ETFs was 173 tons. More tactical investors reduced hedging at the beginning of the year amid the start of the COVID-19 vaccination campaign. At the same time, rising interest rates have made gold more expensive to own.
However, this outflow is only a fraction of the 2,200k gold ETFs have accumulated over the past five years, demonstrating the continuing importance of gold assets in investors' portfolios.
In terms of annual consumer demand, jewelery recovered and returned to pre-pandemic levels of 2124 tons. This was supported by a strong fourth quarter, in which demand reached its highest level since the second quarter of 2013 - a time when the price of gold was 25% below the average price 2021. This once again confirms the high demand in the last quarter.
For the twelfth year in a row, Central Banks have been net buyers of gold for their reserves. They increased their reserves by 463 tons, which is 82% more than in 2020. A number of Central Banks from developing and developed countries replenished their gold reserves, providing a 30-year maximum of world reserves.
The use of gold in the technology sector increased by 9% in 2021, hitting a 3-year high at 330t. While demand in the technology sector is comparatively lower than in other industries, the use of gold is widespread and is used in various electronic devices - from mobile devices to the sophisticated James Webb telescope recently launched into Earth orbit.
In 2022, the price of gold is likely to face the same dynamics as last year, with opposing forces that, on the one hand, will support its development, and on the other, restrain it. In the short term, the value of the precious metal will react to real interest rates, which in turn will depend on how quickly central banks around the world tighten monetary policy and how effectively they manage inflation.
Historically, these market dynamics have always been difficult for gold. However, the high inflation seen earlier this year and the possibility of a market downturn are likely to support demand for gold as a defensive asset. In addition, gold may continue to receive support from consumer demand and central banks around the world.
Louise Street, Senior Analyst at the World Gold Council, said: “Gold's performance this year is particularly linked to the value of its unique dual nature, as well as multiple demand factors. In terms of investment, the tug of war between persistent inflation and rising interest rates has resulted in a mixed demand picture. Rising interest rates have increased the risk appetite of some investors, which is reflected in the outflow of funds from ETF funds. On the other hand, the search for safe investments led to an increase in purchases of gold bars and coins, which was facilitated by the purchases of Central Banks. The decline in ETFs was offset by rising demand in other sectors. Demand for jewelry rose to its highest level in nearly a decade as key markets such as China and India regained economic momentum.
We expect a similar momentum to affect gold performance in 2022 as well. The determinants of demand will fluctuate depending on the relative manifestations of key economic variables. How Central Banks handle persistently high inflation will be a key driver for institutional and private demand in 2022. The current strength of the jewelry market could suffer if new strains of COVID-19 lead to renewed restrictions. However, in the event of a sustainable economic recovery, it may remain at a high level.”