After historically low global nominal interest rates were put in place in 2020, including a benchmark rate range of 0% to 0.25% in the United States, to help counteract the negative economic impact of the Covid-19 pandemic, benchmark interest rates were raised substantially during 2022 to manage inflation. Rising interest rates and a significant increase in the value of the trade-weighted US dollar had a negative impact on gold prices during the middle part of 2022, with the price falling from a high of $2,070/oz in March 2022 to a low of $1,615/oz in September 2022. These trends subsequently reversed, with inflation expectations decreasing due to the impact of higher interest rates. With inflation declining, expectations of a slowing rate of benchmark interest rate increases in the United States helped lead to a decline in the value of the trade-weighted US dollar, allowing gold prices to trade back above $1,800/oz prior to the end of 2022 and back above $1,900/oz in early 2023.
Overall demand for gold remained strong, with the World Gold Council reporting demand at an 11-year high, reflecting an 18% increase over the prior year, led by significant growth in purchases by global central banks and an increase in investment demand.
Despite the increase in overall investment demand, the World Gold Council reported that collective ETF gold holdings decreased by 110 tonnes during the year, though this was less than the 189 tonne decrease in holdings during 2021. Investment demand was helped by an increase in purchases of bars and coins, which rose 2% versus 2021.
Central bank purchases rose by over 150% year-over-year, representing the highest level of net purchases in over 50 years. The World Gold Council estimates that global central banks added 1,136 tonnes to their reserves during 2022, the 13th consecutive year of net purchases. During late 2022, China reported its first increases in gold reserves since 2019. This could have a strong positive impact going forward if purchases continue.
During the worst impacts of the Covid-19 pandemic, some central banks looked to their holdings of gold as a source of liquidity in difficult economic times, 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 year-over-year increase in net purchases in 2022 continues to show that central banks view gold positively and as a long-term store of value.
Global jewellery consumption moderated in 2022, declining 3% versus the prior year after a strong increase in 2021 following a long-term low in 2020 due to the global impact of Covid-19. The decline in jewellery consumption in 2022 was led by a 15% reduction in China that was impacted by Covid-19 lockdowns in the country. As a result of the decrease in China, India regained the mantle of the country with the highest level of gold jewellery consumption. On a combined basis, India and China represented approximately 56% of global gold jewellery consumption in 2022, down from 60% in the prior year.
Gold demand for electronics and other industrial uses fell by 7% in 2022, due in part to supply chain and labor challenges experienced during the year.
Overall supply of gold in 2022 increased by 2%, due mainly to modest increases in mine production and recycled gold.
The supply of recycled gold increased by 1%, but was still 30% lower than the all-time high reached in 2009 despite the record high annual average gold price.
Global mine production rose for the second year in a row but still remained approximately 1% below the peak reached in 2018, highlighting the difficulty that the mining industry faces in increasing production despite higher demand and the second straight year of record high annual average prices. 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 remains a challenge.