Thai gold demand recovering

• Feb 04, 2022

Consumer demand for gold in Thailand reached 12 tonnes in the fourth quarter of 2021, up 44% from the previous quarter and bringing the full-year total to 37 tonnes, reversing a year of net sales in 2020, according the World Gold Council.

Global annual demand (excluding over-the-counter markets) recovered many of the Covid-induced losses from 2020 to reach 4,021 tonnes last year, the Council said in its latest “Gold Demand Trends Report” released this week.

Annual demand for gold jewellery in Thailand was 8 tonnes, a 33% increase from 6 tonnes in 2020. In the fourth quarter jewellery consumption was 20% higher year-on-year — the fourth consecutive quarter of year-on-year growth. It was the strongest quarter since the pandemic began and reflects Thailand’s continued recovery from the effects of Covid.

The country also moved from net divestment to net positive investment in gold bars and coins. The combination of a lower gold price and continued economic recovery lifted annual demand for bars and coins to 29 tonnes, compared with net selling of 87 tonnes in 2020, and bringing total consumer demand (including jewellery) for the year to 37 tonnes.

“We saw a significant rise in bar and coin demand as Thailand moved from net disinvestment to net positive investment,” said Andrew Naylor, regional CEO for Asia-Pacific excluding China at the World Gold Council.

“The combination of lower gold prices and continued economic recovery, along with concerns about inflation and weakening of the baht played a big role in this investment trend.”

Global demand for gold reached 1,147 tonnes in the fourth quarter of 2021, its highest quarterly level since the second quarter of 2019 and an increase of almost 50% year-on-year, according to the Council.

Gold bar and coin demand rose 31% to an 8-year high of 1,180 tonnes as retail investors sought a safe haven against the backdrop of rising inflation and ongoing economic uncertainty caused by the coronavirus pandemic.

OUTFLOWS FROM FUNDS

Meanwhile, outflows of 173 tonnes were seen from gold-backed exchange-traded funds (ETFs) as some tactical investors reduced hedges early in the year amid Covid vaccine rollouts, while rising interest rates made holding gold more expensive.

Nevertheless, these outflows represent only a fraction of the 2,200 tonnes that gold ETFs have accumulated over the preceding five years, the Council said, demonstrating the continuing importance investors place on including gold in their portfolio.

Turning to annual consumer demand, the jewellery sector rebounded in 2021 to match the pre-pandemic total of 2,124 tonnes. This was aided by a strong fourth quarter when demand reached its highest level since the second quarter of 2013 — a quarter when the price of gold was 25% lower than the average comparative price in 2021. This further highlights the strength of demand in the most recent quarter.

For the 12th consecutive year, central banks were net purchasers of gold, adding 463 tonnes to their holdings, which was 82% higher than 2020. A diverse group of central banks from both emerging and developed markets added to their gold reserves, lifting the global total to a near 30-year high.

The use of gold in the technology sector in 2021 increased 9% to reach a three-year high of 330 tonnes. While technology demand is comparatively smaller than other sectors, its uses are far reaching and prevalent in a variety of electronics, from mobile devices to the groundbreaking James Webb space telescope recently put in orbit.

Gold is expected to face similar dynamics in 2022 to those seen last year, with competing forces supporting and curtailing its performance. In the near term, the gold price will likely react to real rates, which in turn will respond to the speed at which global central banks tighten monetary policy and their effectiveness in controlling inflation.

Historically, these market dynamics have created headwinds for gold. However, the elevated inflation seen at the start of this year and the possibility of market pullbacks will likely sustain demand for gold as a hedge. In addition, gold may continue to find support from consumer and central bank demand.

‘UNIQUE DUAL NATURE’

“Gold’s performance this year truly underscored the value of its unique dual nature and the diverse demand drivers,” said Louise Street, the WGC senior analyst for Europe, the Middle East and Africa.

“On the investment side, the tug of war between persistent inflation and rising rates created a mixed picture for demand. Increasing rates fuelled a risk-on appetite among some investors, reflected in ETF outflows.

“On the other hand, a search for safe haven assets led to a rise in gold bar and coin purchases, buoyed by central bank buying. Declines in ETFs were offset by demand growth in other sectors. Jewellery reached its highest level in nearly a decade as key markets like China and India regained economic vibrancy.

“We expect similar dynamics to influence gold’s performance in 2022 with demand drivers fluctuating according to the relative dominance of key economic variables. How central banks deal with persistent high levels of inflation will be a key factor for institutional and retail demand in 2022.

“Meanwhile, the jewellery market’s current strength could be hampered if new Covid variants restrict consumer access again or continue if the economic recovery endures.”