(Kitco News) – The gold market has once again proven itself that it is a global market that is more robust than just investment demand, according to the latest report from the World Gold Council.
In its quarterly and annual gold trends report, published Thursday, the WGC said that the physical gold market saw broad-based robust growth in 2021 even in the face of lackluster demand for gold-backed exchange-traded products.
The WCG said that global physical gold demand grew 10% to 4,021 tonnes in 2021. The report added that gold demand grew by 50% in the fourth quarter last year, the highest pace in 10 years.
“Demand recouped much of the COVID-related losses sustained during 2020. Demand for gold in the consumer-driven jewelry and technology sectors recovered throughout the year in line with economic growth and sentiment, while central bank buying also far outpaced that of 2020,” the analysts said in the report.
“The year ended much as it began, with nominal interest rates and inflation jockeying for position as the key driver of gold. But unlike in Q1, inflation was a more dominant factor than interest rates in Q4. This helped gold make up some of the ground it had lost in the early part of the year,” the report added.
The one weak spot in the gold market was investment demand for gold-backed ETFs.
“Global holdings of gold ETFs fell by 173t in 2021 in sharp contrast to 2020’s record 874t increase. Q4 outflows of just 18 tonnes were a fraction of the much larger outflows seen in Q4 2020,” the report said.
Despite the increased appetite for gold, prices fell roughly 4% last year; however, the WGC noted that the average price for gold in 2021 was around $1,799, up 2% from 2020.
“ETF demand could largely see a repeat of 2021 with both economic resilience and higher nominal interest rates as headwinds. However, continued inflationary pressures, financial market wobbles and COVID restrictions present upside risk,” the report said.
Although demand for paper gold was lackluster last year, the WGC reported an insatiable appetite for the physical metal. The report noted that bar and coin demand rose to 1,180 tonnes in 2021, increasing 32% and representing an eight-year high.
While the gold market saw broad-based consumption, the WGC said that the jewelry market saw the most significant gains, especially in the year’s final months. Gold jewelry demand increased to 2,123.6 tonnes, up 52% from 2020.
“2021 was a redemption story for global jewelry demand as it recovered fully from the blows inflicted by COVID in 2020,” the report said.
India and China, the world’s two largest gold-consuming nations, saw jewelry demand increase by 93% and 63%, respectively, in 2021.
“India was a key driver in Q4, but jewelry demand in markets across the globe – almost without exception – was stronger y-o-y. Continued economic recovery and, crucially, the less widespread use of strict lockdown measures to contain COVID were key reasons,” the analysts said.
Outside of India and China, the report strong growth in western markets, with demand rising to a 12-year high in the U.S.
“Demand growth was generally considered to be due to the lack of competition for discretionary spending, given the ongoing lull in spending on travel and entertainment,” the report said. The report noted that in total central banks hold nearly 35,600 tonnes of gold.
Central bank gold purchases were also another important pillar of strength for the gold market last year. The WGC said that central banks accumulated 463 tones of gold in 2021, up 82% compared to 2020.
“2021 is the twelfth consecutive year of net purchases, during which time central banks have bought a net total of 5,692t,” the analysts said.
The WGC said that 15 central banks increased their gold reserves last year, with Thailand leading the way, buying 90 tonnes of gold. Meanwhile, Ireland became the first Western developed market central bank to increase its gold reserves; it bought 3 tonnes of gold last year.
Gold demand in the technology sector has traditionally seen relatively stable demand over the years; however, the WGC said that this sector consumed 320 tonnes of gold last year, an increase of 9% compared to 2020.
“While 2021 can broadly be considered a year of strong recovery in the technology sector from the depths of COVID-19 in early and mid-2020, it has not been without its challenges. As we reported through the year, the pandemic continued to impact both supply and demand across all technology sectors,’ the report said.
Looking at the supply side, the WGC said that the total gold supply fell 1% last year, led by an 11% drop in recycled gold.
Looking at mine supply, gold production increased by 2% to 3,561 tonnes, “higher than 2020 but still lower than 2019 and 3% lower than 2018– which stands as the year during which most gold was mined,” the report said.