Overall demand for gold was strong in 2021, with the World Gold Council reporting a 10% increase year-on-year, led by increases in the jewellery and technology sectors and purchases by global central banks.
Despite the increase in overall demand, investment demand for gold in 2021 declined, with the World Gold Council reporting that collective ETF gold holdings reduced by 173 tonnes during the year after record net inflows in the prior year. COMEX net long positions also declined from the alltime highs reached during 2020. These investment demand decreases were partially offset by strength in purchases of bars and coins, which rose 31% versus 2020.
Historically low global nominal interest rates, including a benchmark rate range of 0% to 0.25% in the United States in place since March 2020, and a continuation of negative 10‑year real rates in the US and Europe, have helped gold prices remain strong by reducing the opportunity cost of holding gold over the past two years. However, the expectation for increases in benchmark interest rates starting in 2022, and reductions in financial and monetary stimulus measures that were put in place to reduce the economic risk associated with the Covid-19 pandemic, moderated investment demand for gold in 2021. Notwithstanding this, with tightening measures already anticipated, and the possibility of continued inflation, Q4 2021 represented the strongest quarter for overall investment demand since Q3 2020, potentially setting the stage for a rebound in 2022.
There was a significant positive turnaround in global jewellery consumption in 2021 due to a stronger economic outlook after purchases were significantly impacted by Covid-19 in the prior year, with global consumption up 52% versus 2020. China and India, representing approximately 61% of global jewellery consumption demand on a combined basis, led the way and accounted for the bulk of the increase. Versus the prior year, China’s consumption level was up 63% and India’s consumption level was up 93%.
Gold demand for electronics and other industrial uses rose by 10% in 2021, after declining in 2020 due to reduced manufacturing activity and demand for electronics as a result of the spread of Covid-19. A further return to pre-pandemic manufacturing activity and a continued increase in demand for 5G infrastructure could help to grow demand in 2022 and beyond.
Central bank purchases rose 82% year-on-year, but still remained below the long-term peak of net purchases that were made in 2018 and 2019. The World Gold Council reports that central banks added 463 tonnes to their reserves during 2021, representing the twelfth consecutive year of net purchases. During 2020, some central banks looked to their holdings of gold as a source of liquidity in difficult economic times as a result of the global pandemic – with their ability to do so providing a strong statement as to why gold is a valuable reserve asset and a key source of reserve diversification. The strong increase year-on-year of net purchases in 2021 shows that central banks continue to view gold positively.
Overall supply of gold in 2021 decreased by 1%, the second straight year of declines, mainly attributable to an 11% drop in recycled gold tempered by a modest 2% increase in mine supply.
The supply of recycled gold fell after reaching a nine-year high in the prior year that was attributable to the rise in prices and economic worries over the initial impacts of Covid-19.
Global annual mine production rose for the first time in three years but still remained approximately 3% below the peak reached in 2018, further confirming that the mining industry may have reached a medium-term peak in gold production at that time. As gold prices have increased and capital has become more readily available in recent years, there is continued evidence of increased spending on exploration by mining companies, but the costs of mine construction and the time required for environmental studies and permitting activities before reaching the production stage means that a return to sustained global production growth could be delayed accordingly.