Global economic slowdown: central banks are looking to buy gold like never before in history!

According to a CNBC article, demand for gold hit an 11-year high in 2022 as a result of massive central bank purchases. The World Gold Council said that active buying by retail investors contributed to an 18% increase in gold demand last year.

Annual gold demand jumped to 4,741 tons (excluding over-the-counter or OTC) in 2022. This represents the largest annual figure in eleven years, precipitated by a record fourth-quarter demand of 1,337 tons. As reported by the World Gold Council:

“Net central bank purchases in the fourth quarter reached 417 tonnes, bringing total second-half purchases to 862 tonnes. Echoing the third quarter, the data for the final quarter of the year were again a combination of reported purchases and a substantial estimate of unreported purchases.”

2022 Central bank gold purchases reach 55-year high

In 2022, central banks purchased 1,136 tons of gold, a 55-year high, with most of these purchases being “not reported“. Moreover, last year’s demand surge also marked a significant 152% increase over 2021, when central banks purchased only 450 tons of gold. According to the World Gold Council, the 2022 demand spike is attributable to a variety of unsavory macroeconomic factors, including geopolitical uncertainty and high inflation.

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According to reports, investment demand for gold increased by 10% to 1,107 tons. In addition, gold holdings in exchange-traded funds (ETFs) experienced lower outflows in 2022 than in the previous year. On the other hand, jewelry consumption fell 3% last year to 2,086 tons. Much of this weakness occurred in the fourth quarter, when gold prices recovered.

Meanwhile, total annual gold supply rose 2% last year to 4,755 tons, with mine production reaching a four-year high of 3,612 tons. Commenting on this development, the World Gold Council said:

“The year 2022 is not only the thirteenth consecutive year of net purchases, but also the second highest level of annual demand since 1950, driven by 400 tonnes of demand in the third and fourth quarter.”

In addition, the industry-backed group’s annual survey of policymakers revealed some key drivers for the need to hold gold last year. These key reasons included the “role of the precious metal as a long-term source of value” and its “performance in times of crisis“.

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Most central bank gold purchases in 2022 came from emerging markets. In addition, CNBC reported that the largest buyer for the period was the Central Bank of Turkey, with 542 tons. In addition, the central banks of China, Egypt, India, Iraq, Oman and the United Arab Emirates significantly increased their gold reserves last year.

Trajectory for 2022

Gold started 2022 on a safe footing, inflating 12% through March, but eased as the Federal Reserve began raising interest rates. This fiscal development led to a strong dollar and the formation of significant challenges for the precious metal.

The value of gold generally weakens in an environment of rising interest rates and a strong dollar, particularly because of its price in U.S. dollars. This trend impacts the purchasing power of non-U.S. buyers and hurts global demand for gold.

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