World Gold Council sees gold demand flat in 2022 as market loses momentum in Q2

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(Kitco News)- The first half of the year saw strong physical demand in the gold market, but slow growth in the second quarter has prompted the World Gold Council (WGC) to downgrade its outlook for the rest of the year.

The WGC said the challenging economic environment presents obstacles and opportunities for the precious metal. In their mixed outlook, analysts said continued inflationary pressures coupled with rising market uncertainty would support gold prices for the rest of the year. However, solid momentum in the US dollar will act as a significant headwind.

“Certain macroeconomic factors such as tightening of aggressive monetary policy and the strengthening of the US dollar may continue, but there are surprises for investments in gold,” analysts said in the report.

The WGC downgraded its outlook for 2022 in its second quarter trends report published on Wednesday. WGC sees demand relatively flat through the end of the year.

The report said the demand for physical gold declined by 948 tonnes, or 8%, compared to the second quarter of 2021. However, demand for physical gold in the first half of the year stood at 2,189 tonnes, up 12% over the first half of last year.

“Although H1 ended well, with Bar and Coin, ETFs and OTC demand posting the third highest H1 since 2010, the second quarter set a slightly weaker tone for ETFs, which released so far in July. And it could set a precedent for the rest, given a possible moderation in inflation amid aggressive H2 monetary policy tightening,” analysts said.

While the demand for gold may ease in the second half of the year, WGC does not expect the market to decline. Analysts said there is enough uncertainty in the market to support demand.

“While inflation may begin to ease in H2, supply conditions in many commodity markets remain uncertain and fresh spikes cannot be ruled out. Such an environment would further highlight the safety of gold. Ultimately, gold prices remain low. Relative performance remains solid by 2022, supporting its diversification advantages compared to other hedges,” the analysts said. “Furthermore, geopolitics is always a wild card and top of mind for investors. And finally, net investor positions in futures are historically low, short-covering risk on positive price triggers. presents.”

Looking at the demand trend during the second quarter, WGC said that most of the weakness can be traced to a reduction in investment demand. The report said that overall investment demand declined by 28% in the second quarter.

Gold-backed exchange-traded products saw an outflow of 39 tonnes in the second quarter, the report said. At the same time, the physical demand for bullion remained relatively unchanged as compared to last year.

“Persistent inflation concerns supported investment inflows into gold, but monetary tightening and a rising dollar outflow were key drivers. These pressures increased towards the end of the quarter as the US Fed adopted a more aggressive tightening momentum and as such. -As fears rise of a potential recession with a fall in commodity prices,” the analysts said.

Looking at the ETF market, WGC said North American-listed funds led the way for outflows. Analysts said the liquidation was due to the Federal Reserve’s aggressive monetary policy stance.

Along with weak investment demand, the report said the appetite of central banks for gold has also weakened. The report said that central banks bought 180 tonnes of gold in the second quarter, which is 14% less than last year.

However, the WGC said it expects central banks to remain net buyers of gold, even if the pace slows for the rest of the year.

“We view central bank demand much more positively than in our previous Gold Demand Trends report. Accordingly, we revise our forecast for the full year, with the potential to remain largely unchanged from 2021 onwards. It stems from a combination of low sales, continued buying from regular buyers and demand from institutions that have not been buyers in recent years – such as Iraq – or for too long, as is the case with Ireland,” analysts he said.

One area of ​​strength in the gold market came from the demand for jewelry. The report said global jewelry demand increased to 453.2 tonnes, a 4% increase over the previous year. India’s jewelery demand continued to dominate the global market, growing 49% in the second quarter of 2021.

At the same time, the ongoing COVID lockdown in China continued to impact the market, with jewelry demand declining by 29% compared to last year.

Analysts said in the report, “While global jewelry consumption has recovered from the worst period of COVID-induced weakness seen in 2020, it is still at the normal quarterly average – around 550t – characteristic of the few years before the pandemic.” , have to be regained.” ,

Looking ahead, the WGC faces further challenges for the world’s two largest gold-consuming countries. Analysts said they see slowing jewelery demand in India in the second month of the year.

“Despite healthy Q2 demand, the macroeconomic backdrop of a weak currency, rising inflation and higher interest rates led to adverse conditions,” analysts said.

The report also noted that as demand falls, so does supply. The report indicated that total gold supply rose 5% in the first half of the year to a record high.

WGC said mine production rose 4% to 911.70 tonnes in the second quarter.

The report also noted strong recycling in the gold market, which jumped 8% in the second quarter.

Disclaimer: The views expressed in this article are those of the author and may not reflect those views. Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article is not liable for any damages and/or damages caused by the use of this publication.

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