Gold’s supply and demand in Q4 2022

In the first part of our Q4 Gold Report, we highlighted the positive impact on gold of softer inflation, especially as it relates to a potential Fed pivot, and a weaker USD during the quarter. The gold price rallied strongly into year-end, with the final quarter’s 9.8% increase leaving the precious metal virtually flat for the full year¹. We also reported on other significant macro factors and compared gold’s performance to other asset classes. In this second part of the Gold Report, we explore the various sources of supply and demand to further explain recent movements in the gold price.

The fourth quarter saw gold demand increase by 11.5% to 1,337 tonnes, making it the strongest quarter for demand since records began in 2010. The quarter-on-quarter (q-o-q) demand make-up is largely the same with jewellery taking a slightly larger share this quarter (+4% q-o-q) at the expense of retail investment and tech (-3% and -1% q-o-q respectively). Perhaps surprisingly given the 9.8% increase in the price of gold, ETFs were again net sellers of the metal over the quarter.

For the year, 2022 saw an increase in demand of 18.1% compared to 2021. This was wholly down to the heavy purchases made by central banks in the second half of 2022, more than doubling their year-on-year purchases. Annual demand was 4,741 tonnes, 5 tonnes shy of 2011’s record of 4,746 tonnes.

Jewellery demand was 20.0% higher in the quarter thanks to exceptional demand from India, with Diwali falling towards the end of October. Of the 629 tonnes demanded for jewellery production in Q4, 35% of this was from India as demand there increased 50.2% q-o-q. The relatively smaller markets in Europe and the Americas had anticipated seasonal upticks, which went someway to mediate the contraction in Chinese demand owing to Covid lockdowns; Q4 2022 Chinese jewellery demand was 28.1% lower than Q4 2021.

Annual jewellery demand was 4.0% lower than in 2021, at 1,867 tonnes. Primarily this was due to the softness in the Chinese economy, which saw their demand for gold jewellery fall 15.2% year-on-year.

The fourth quarter proved another remarkable period for central bank purchases of gold, as Q3 2022 data was revised up to an all-time high of 445 tonnes. Current estimates for Q4 demand (central bank data being more subject to revisions than other demand categories) are at 417 tonnes so, although a q-o-q fall of 6.2%, a still outstanding quarter in absolute terms. The Central Bank of Turkey was the largest purchaser over the course of the year, increasing its holdings by more than 3.5x to 548 tonnes. Possibly more important though is that the People’s Bank of China resumed purchases into year-end, adding more than 60 tonnes in the final quarter and taking it to over 2,000 tonnes of gold reserves for the first time. This ranks China fourth in the table of central bank holdings behind the US, Germany, France and Italy.

The rally in the price of gold in Q4 2022 was not due to increased demand coming from ETFs; ETF holdings of gold fell consecutively through the quarter as globally investors sold gold ETFs. Typically, there is a strong correlation between the gold price and inflows to gold ETFs, meaning Q4 2022 is an outlier. ETF holdings of gold fell 3.1% in the quarter as the gold price increased from the demand seen by jewellery production and central banks. 

Although all regions were net sellers in Q4, North American sales saw net inflows in December as gold broke through $1,750. Asian flows also turned marginally positive in the final month.

Gold supply increased by 1% in the quarter and 1.5% for the year as a whole. Mined supply increased by 1.5% in 2022 to have its strongest year since 2018, showing recovery from the pandemic. In Q4 2022, however, there was a fall of mined activity of 1.6% to 930 tonnes as stronger prices saw more supply come from the recycled sector. Recycled gold supply increased 8.3%, up from 270 tonnes in Q3 2022, though supply from this sector was almost flat for the year as prices – until recently – had been relatively weak. Stronger prices also meant less supply was taken out for hedging contracts although 5 tonnes was still removed from supply, an improvement on the 10 tonnes in the previous quarter.