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Gold Nuggets: What Can We Learn From
Recent History?
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.
George Milling-Stanley
Chief Gold Strategist
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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
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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.
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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.
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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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pre-COVID five-year period accounted on average for 5.27% of total demand, or 230 tons. In 2021, ETFs suffered
net outflows of 173 tons. The gold ETF sector seemed to pause in 2021 after several strong years.
2022 has seen sustained buying across the whole spectrum of investors. This buying was triggered by the
persistence of record high monthly inflation readings, with current levels reaching a 40-year high. Investors were
initially slow to respond to increasing inflation, in part because Federal Reserve chair Jerome Powell and Treasury
Secretary Janet Yellen both insisted for months that the high inflation reports were a transitory phenomenon,
caused mainly by COVID-related disruptions to supply chains across many industries. Investor response to
inflation, alongside market and geopolitical volatility, has kicked in and 2022 has seen strong inflows into gold
ETFs, having already surpassed last year’s outflows.3 Any return to substantial net inflows can be expected to be
helpful for the gold price.
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Footnotes
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