2022 was a textbook example of how gold’s diverse sources of demand and supply can counterbalance one another, providing gold with its uniquely stable performance as an investment asset.
ETF investment was weak, albeit improved from 2021; in contrast, retail bar and coin buying was strong, driving gold to a marginal gain in 2022. The anaemic sentiment in ETFs was also reflected in managed money net positioning on COMEX, which oscillated between net long and net short in H2 2022.
As well as underlying support from geopolitics, gold investment was impacted by a combination of multi-decade high inflation, especially in Western markets, and the resultant aggressive rate hikes by the Fed and other central banks. Bar and coin investors focused on the former and sought the safety of gold as a hedge against inflation. In contrast gold ETF investors reduced their holdings, especially in the second half, focusing on gold’s rising opportunity cost as central banks across the globe imposed hefty rate hikes and the US dollar surged.
ETFs
Holdings of physically-backed gold ETFs declined by 110t (-3%) in 2022, equivalent to outflows of US$3bn. Demand for these products surged as geopolitical risk took centre-stage during the first four months of the year, but then steadily gave back gains as aggressive rate hikes began to dominate the narrative. At the end of 2022, global holdings of gold ETFs were 110t lower at 3,473t (AUM of US$203bn). Low-cost gold ETFs seemed to buck the trend, however: collectively, they saw net demand of 48t during 2022. 2
Funds listed in North America saw the biggest fall in demand. North American fund holdings registered a decline of 75t (US$3bn) during the year, led primarily by the two largest and most liquid funds. The region saw a strong start to the year with collective demand of 188t between January and April before higher yields and a stronger dollar weighed heavily on gold in the months that followed.
European funds dipped into negative territory towards year-end. In Europe, y-t-d gold ETF demand remained positive until November but ultimately ended 1% lower (-15t, US$943mn) y-o-y. 3
The relative resilience of European ETF demand is likely due to closer proximity to the Russia-Ukraine war driving safe-haven flows, and deeper concerns over the outlook for the region’s economic growth.
China led the fall in demand for gold ETFs listed in Asia. Asian-listed funds saw net negative demand of 21t in 2022 as a substantial fall in Chinese funds’ gold holdings was partially offset by demand for Japanese and Indian funds. Asian funds did not experience the same Q1 surge of demand as North America and Europe, as instead higher local gold prices incentivised profit-taking. This was particularly evident in China, where investors adopted a more tactical approach throughout much of 2022. Funds in Other regions saw a fractional rise of 0.2t in holdings over the year. 4
Bar and coin
The second half of the year was particularly strong, achieving two successive quarters of demand in the region of 340t for the first time since 2013. The need for wealth protection in the global inflationary environment remained a primary motive for gold investment purchases.
China
Q4 bar and coin demand in China fell 20% y-o-y to 61t, taking the full year total down 24% to 218t, due mainly to COVID-related restrictions throughout the year.
Annual retail investment was 18% below its 10-year average of 269t and was more in line with the 199t of demand in 2020 – a year also affected by lockdowns. Chinese investors were confined to their homes for much of 2022, unable to make physical gold purchases– transactions which typically occur in-person rather than online. The reversal of lockdown policies in Q4 cleared the way for a return to normal investment activities, but surging COVID infections hindered many investors and demand remained muted.
Nevertheless, underlying investor interest in gold during 2022 remained high. The Baidu search index for ‘gold bar’ was higher on average than in 2021, as geopolitical risks and local currency weakness kept gold investment products on investors’ radars. And a PBOC quarterly survey showed a record level of intention to save among Chinese households, some of which will likely be channelled into gold.
As investors began to recover from the infection wave, interest in gold investment surged again in early January ahead of the CNY holiday. Looking ahead to the rest of 2023, we expect a rebound in Chinese bar and coin demand, supported by economic recovery as the country opens up, as well as continued efforts by commercial banks to promote physical gold products. Gold’s safe-haven appeal will also continue to attract investors, given their record tendency to save.
India
Annual bar and coin demand in India was 7% lower at 174t. The yearly drop was due to a 28% y-o-y decline in Q4, albeit that demand was a healthy 56t during the quarter, levels failed to match the extremely strong performance of Q4 2021.
Bar and coin demand was healthy at the start of the fourth quarter during the Dussehra and Dhanteras festivals. 5 However, the onset of the wedding season saw attention turn towards gold jewellery – particularly as retailers preferred to promote higher-margin products – and investment demand took a back seat. Many investors also preferred to sit out after missing the swift jump in the gold price in November. Discussions with the trade revealed that buying was concentrated on lower-ticket items (e.g. 20g and below), which suggests a focus on gifting demand.
Looking ahead in 2023, Indian bar and coin demand currently faces headwinds from the strong domestic gold price and rising equity market, while lower inflation could diminish gold’s role as an inflation hedge. However, a revival in rural demand may provide support to bar and coin demand in the coming year.
Middle East and Turkey
Annual gold investment in Turkey rose by 38% to 85t – the third highest year in our data set. The full-year total was boosted by a more than sevenfold y-o-y increase in Q4 demand to 29t. Although the large rise was from a relatively low base in 2021, the quarterly total was strong in absolute terms – significantly above the 17t five-year quarterly average.
Extreme domestic inflation continued to drive investment demand, with real interest rates in deeply negative territory. Demand was particularly strong in October before tailing off slightly in November and December as surging domestic gold prices capped demand.
Bar and coin demand across the Middle East region rose 42% in 2022 to a four-year high of 78t. A fifth consecutive quarter of substantial double-digit gains in the region was largely the result of strong Q4 performances from Iran and Egypt.
In Iran, rampant inflation and the need for safe-haven assets encouraged gold demand, lifting Q4 demand to 10t (+33% y-o-y). Nevertheless, demand was restrained by new regulations imposing weight and volume limits on each gold transaction.
In Egypt, a (planned) depreciation of the pound in late October – following a previous depreciation in March – encouraged demand for a safe-haven and inflation hedge. Fourth quarter demand more than doubled y-o-y as a result, taking annual demand 83% higher to 4.4t.
US and Europe
Western investment demand for physical gold products reached an annual record in 2022. Combined US and European purchases of gold bars and coins hit 427t, exceeding the previous record of 416t in 2011.
Retail investors in the US bought 113t of gold in 2022 – the third highest annual total in that market after 2021 and 2009. The 3% y-o-y decline was reflective of 2021 record demand rather than any real weakness in demand during the year. Fourth quarter demand of 28t was in line with the average quarterly pace of buying since the start of 2021.
US investment demand appeared by year-end to have settled into a more measured pace from its previous more frenzied buying, and selling back reportedly remains limited. This, combined with improved supply, has allowed premiums to ease.
2023 has started well: combined month-to-date sales of gold Buffalo and Eagle coins reported by the US mint had exceeded six tonnes after the third weeks of January.
Annual retail investment in Europe breached 300t for only the second time in our data series, increasing 14% y-o-y to 314t. Fourth quarter bar and coin demand jumped 21% y-o-y to 81t, maintaining the pace of the previous three quarters.
High inflation, recessionary concerns (along with implications for equities) and the Russia/Ukraine war continued to underpin purchases, both in Germany and across parts of Eastern Europe, most notably Poland.
Local currency price moves also drove investment flows during the fourth quarter. The relative stability in the euro- and Swiss franc-denominated gold price during November and December encouraged investors to buy in the expectation that local prices would rebound and follow the dollar price higher – a trend that has played out so far in January.
ASEAN markets
Most of the ASEAN markets we cover in GDT saw retail investment rise in 2022. The only exception was Thailand, where annual bar and coin demand fell marginally to 29t. However, Q4 investment demand in Thailand was robust and rose 8% y-o-y to 10.8t, the highest since Q1’19.
In Vietnam, Q4 retail investment surged by 48% to 9t, leading to healthy full-year demand of 41t, a 32% annual increase. Several factors contributed to this performance, including rising inflation, currency devaluation, bond issuance fraud by a large real estate company and an underperforming equities market. The strength of demand kept premiums elevated at around $500-550/oz.
Elsewhere in South East Asia retail investment demand was also up. Annual bar and coin demand in Indonesia increased by 8% y-o-y to 21t, while Singapore and Malaysia saw growth of 32% and 27% respectively.
Rest of Asia
Japan saw net selling of bars and coins in 2022, a reflection of the higher local gold price and older generations looking to cash in on their long-term holdings. Selling was concentrated in the first two quarters: Q4 saw net positive investment of 2t, spurred by rising inflation in Japan, which now stands at its highest in 41 years.
In South Korea retail investment slowed as investors preferred to hold cash amid a sluggish economy and depressed investment sentiment. Annual bar and coin demand fell 19% to 17t.
Australia
Investor appetite for gold remains fairly strong on the back of concerns about global economic malaise, high inflation and the spectre of rising interest rates in an over-leveraged market. While retail investment demand remained lower than its impressive Q1 levels, it was robust at just over 4t. Overall 2022 retail investment demand of just under 20t was down 2% y-o-y.
