Gold Nuggets: What Can We Learn From Recent History?


Chief Gold Strategist, State Street Global Advisors

2021 was a period of recalibration for gold — reverting toward longer-term trend levels among demand sectors, with the price seeking to consolidate at a higher base. Nearly three months into 2022, there are several reasons to remain optimistic about gold’s outlook.

Markets remain volatile as we grapple with ongoing effects of the pandemic and the Russia-Ukraine War, which continues to have devastating human impact. With so much uncertainty and non-linear market moves, gold remains top of mind as investors consider how to mitigate these risks. However, looking beyond some of the headlines, fundamentals for gold in 2022 remain robust. In this blog, we leverage some of the recent research from the World Gold Council to look at gold supply and demand trends in 2021 to see if those trends may continue into 2022 or, perhaps, improve.

In particular, I want to look at where there might be room for improvement on last year’s performance compared with the most recent period that might fairly be regarded as “typical”, the five years from 2015 through 2019, immediately preceding the onset of the COVID-19 pandemic. Let’s start with the demand side of the gold equation.

Global Gold Demand by Sector (Metric Tons)

Global Gold Demand by Sector (Metric Tons)

We break gold demand down into four main categories: jewelry, investment, technology and central bank net purchases. Here, we’ll take a look at each of the categories, 2021 performance, and factors that may come into play in 2022.

Jewelry Demand Recovers

The pandemic hit the demand for gold jewelry very hard, the total for the full year 2020 falling about 50% in the face of widespread lockdowns and social distancing restrictions. Well over half of global jewelry demand is attributable to emerging market (EM) countries, the same countries that were hit early on by the pandemic and also applied the strictest lockdowns and social distancing rules. Small signs of an early recovery in jewelry demand became apparent in Q4 2020, and the rebound was confirmed in full-year 2021 statistics.

Gold Demand Trends to Watch in 2022

Gold Demand Trends to Watch in 2022

Jewelry fabrication demand rose 67% in 2021, with most of the growth occurring in emerging markets, including Thailand, Turkey, Indonesia, and Vietnam. But the largest year-over-year increases stemmed from China and India, up 63% and 93% respectively. The more than 60% growth in jewelry fabrication demand brought jewelry’s share of total global demand to 55%. This compares with an average share of total demand over the five years pre-COVID of 51%, suggesting that the recovery is pretty much complete.

Jewelry demand accounts for around half of the demand total, so continued good performance from jewelry demand will be crucial for the gold price going forward. Much will depend on the outlook for economic growth in the emerging world. China’s economic performance has run into some headwinds of late with trouble emanating from the real estate sector spilling over to the financial sector. This has clouded the economic outlook for the whole country. Whatever the resolution of the country’s economic difficulties, recent reports from China suggest that jewelry demand is continuing to run strong in 2022, after excellent performance last year,1 and the celebration of Chinese New Year.

India, another giant when it comes to EM jewelry demand, has so far seemed to weather the onslaught of COVID-19 much better than many commentators had expected, and its economy remains in good shape as we approach the end of the first quarter. Economic growth in the country is estimated at around 8% in 2021,2 with some small improvement predicted for the current year. If the growth in India continues, and China’s economic difficulties are resolved rapidly, emerging market jewelry demand should be set for another good year and could outperform if last year’s momentum is maintained.

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1World Gold Council and State Street Global Advisors. Note: Figure 1 shows jewelry increase to 2,124 tons in 2021 from 1,401 tons in 2020.
2World Bank and State Street Global Advisor, date as of December 31, 2021.
3Gold Demand Trends – Full-year and Q4 2021, date as of January 28, 2022.
4Gold Demand Trends – Full-year and Q4 2021, date as of January 28, 2022.

Originally Posted March 23, 2022 – Gold Nuggets: What Can We Learn From Recent History?

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