2021 was a roller-coaster year for gold.
The price of gold kicked off 2021 with a strong start, trading over $1,950 an ounce. But it was fast downhill slide from there.
In the first quarter gold prices shed almost 10%, dipping below $1,700. It was the worst first-quarter for gold since 2016. And one of the worst of all time.
Then, in the second quarter, gold rallied reaching over $1,900/oz again by June.
But a subsequent sell-off and a flash crash in early August set prices below $1,800 by September.
Gold is ending the year in a bullish position. But the 2021 gold market was more stressful than exciting and profitable – particularly with that August flash crash setting the market back.
We expect 2022, however, to be a much better year for gold prices overall.
Despite healthy supply from mining and recycling, we believe global demand from the jewelry and investment sectors will drive gold prices to or near record prices in 2022.
Gold Supply 2022
If there was one industry that was only barely affected by the Covid pandemic, it was the gold mining industry.
Quarterly gold mine supply fell to a 5-year low in the second quarter of 2020. But production very quickly recovered. And by the third quarter of 2021, a new quarterly production record was met.
The World Gold Council noted that recent the recent rise in production can be attributed to increases in output from North America, Indonesian, and Mongolian mines.
We should expect a seasonal downturn in global gold production in the first half of 2022 before it picks up again in the third quarter — and perhaps another new quarterly record set again.
From the hundreds of millions of dollars put into the Newfoundland gold rush to buyouts like Agnico-Eagle's recent $11 billion purchase of Kirkland Lake Gold, 2021 saw tremendous investments made into the gold mining industry. And we expect these investments to translate into steadily higher mine production in 2022 and going forward.
Supplies from recycled gold were very weak in 2021. In the third quarter, the World Gold Council reported recycled gold supply was down 22% year-on-year and down 16% compared to Q3 2019.
The WGC noted three main reasons for the decline in recycling in 3Q:
- Weaker gold prices,
- Continued signs of covid recovery, and
- Stockpiles of near-market recycling material were depleted or greatly reduced.
We believe supplies from recycling will pick up significantly as gold prices rise in 2022. However, we don't believe the increase in recycled supplies will have a significant affect on gold prices either way.
Gold Demand 2022
Economic recovery and improved sentiment drove jewelry demand significantly higher in 2021. According to the World Gold Council, global jewelry demand was 50% in the first three quarters of 2021 compared to the same period of the previous year.
Nevertheless, 2021 jewelry demand remained lower than pre-Covid levels.
With continued economic worldwide recovery, we expect jewelry demand to continue increasing to return to pre-Covid levels in 2022.
One factor that may stunt jewelry demand in 2022, however, may be increasing food prices; particularly in India.
India is the world's leading consumer of gold jewelry. It's estimated the Indian festival of Dwali accounts for about 5% of the world annual gold demand by itself.
However, cuts to Chinese phosphate exports in late 2021 are set to drive fertilizer and food prices higher in India. And increasing food prices may threaten to damper India's 2022 gold jewelry demand.
Despite this, however, global jewelry demand should return to pre-Covid levels in 2022 with economic recovery elsewhere around the world. And this return to pre-Covid levels will continue to improve sentiment; which will driving gold prices all the higher.
We also expect demand from central banks and other financail institutions to support any weakness in 2022. This year saw an increase in central bank purchases compared to 2020 — a result of weaker prices in the first quarter. Higher prices will likely suppress purchases but we expect any major weakness in prices to be covered by central bank demand.
The most important aspect of the gold market to watch in 2022, however, will be the investment market.
The gold investment market was weaker compared to last year. Demand for physical gold coins and bars increased in the first three quarters compared to 2020. But this demand was offset by weaker than expect gold ETF demand.
We expect gold ETF demand to significantly ramp up, however, in 2022 with increased market volatility and higher inflation in the U.S. and abroad. Additionally, multiple geopolitical factors are positioned that could incite fear buying. But generally speaking, we expect 2022 to be a year of inflation-driven gold prices.
Gold Prices 2022
Due to increased investment demand from ETFs and physical bullion buying, and despite increases in mine supply, we believe the price of gold will exceed $1,900 in the first quarter of 2022 and perhaps reaching very close to $2,000 before pulling back for a bit.
By the end of summer 2022, however, we expect gold to have rallied back, breaking its intraday record high and topping $2,100 an ounce for the first time ever.