WGC Report: Gold demand hits highest level in more than two years

The latest ‘Gold Demand Trends Report’ from WGC has revealed that annual demand has recovered many of the COVID-induced losses from 2020 to reach 4,021t for the full year in 2021. Demand for gold reached 1,147t in Q4 2021, its highest quarterly level since Q2 2019 and an increase of almost 50% y-o-y, according to the World Gold Council-India press release. 
Gold bar and coin demand rose 31% to an 8-year high of 1,180t as retail investors sought a haven against the backdrop of rising inflation and ongoing economic uncertainty caused by the coronavirus pandemic.
The World Gold Council’s data series reported outflows of 173t in 2021 from gold-backed ETFs as some more tactical investors reduced hedges early in the year amid COVID vaccine rollouts while rising interest rates made holding gold more expensive.
Nevertheless, these outflows represent only a fraction of the 2,200t that gold ETFs have accumulated over the preceding five years, demonstrating the continuing importance investors place on including gold in their portfolio.
The jewellery sector rebounded to match 2019’s pre-pandemic total of 2,124t. This was aided by a strong Q4 when demand reached its highest level since Q2 2013 – a quarter where the price of gold was 25% lower than the average comparative price in 2021; further highlighting the strength of demand in the most recent quarter.
For the twelfth consecutive year, central banks were net purchasers of gold, adding 463t to their holdings, which was 82% higher than 2020. A diverse group of central banks from both emerging and developed markets added to their gold reserves, lifting the global total to a nearly 30-year high. The use of gold in the technology sector in 2021 increased 9% to reach a three-year high of 330t. 
Gold is expected to face similar dynamics in 2022 to those seen last year, with competing forces supporting and curtailing its performance. Near term, the gold price will likely react to real rates, which in turn will respond to the speed at which global central banks tighten monetary policy and their effectiveness in controlling inflation.
Historically, these market dynamics have created headwinds for gold. However, elevated inflation is seen at the start of this year and the possibility of market pullbacks will likely sustain demand for gold as a hedge. In addition, gold may continue to find support from consumer and central bank demand.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough&Polished