By Yusuf Khan
Demand for gold fell during the second quarter of 2022 as the strength of the dollar weighed on prices for the precious metal, but macroeconomic weakness is still likely to ensure it remains an attractive investment, the World Gold Council said in a report Thursday.
Gold demand fell by 8% from the same period in 2021 to 948 metric tons, with much of the weakness related to the dollar's strength, the WGC said.
Pressure from the greenback pushed gold prices 6% lower during the quarter, with rising interest rates also a factor, the council said.
However, for the first six months of 2022, gold demand was 12% higher than the same period of year earlier, driven by demand in the first quarter.
"Despite a strong first half [of the year], investment demand may be flat on the year," the WGC said. "Some macroeconomic factors such as aggressive monetary policy tightening and continued U.S. dollar strength may create headwinds, but upside surprises for gold investment remain firmly on the table," it said.
With recession risks rising, safe havens have been sought-after by investors, although much of the interest has been in Treasurys alongside the dollar, in turn weighing on gold prices and demand.
However, gold--historically a hedge against risk--should still remain attractive for investment and central bank buying, given that "a near-term resolution to the Ukraine war is remote, while further economic weakness is likely in Europe and the U.S. as well as China," the WGC said.
This, though, could be affected by further deterioration of financial conditions which may in turn weigh on jewelry demand, the WGC said. This is borne out by demand for jewelry in the second quarter rising on year from a particularly weak comparative period by just 4% to 453 tons.
China's strict coronavirus policy has added to the drag on demand, the council said.
Central banks continued to buy gold during the second quarter of 2022, with official reserves growing by 180 tons, taking net purchases in the first six months of the year to 270 tons, according to the WGC.
The outlook remains fairly mixed for gold, with both "challenges and opportunities" for the precious metal, Krishan Gopaul, senior analyst for EMEA at the WGC, said in a call.
"There are a number of factors at play in terms of interest rates, geopolitical risk and they're all having different impacts on gold and sometimes one factor may dominate the others," Mr. Gopaul said.
"There's just general uncertainty in the market which is impacting gold but is also impacting all other areas of the market, which you're seeing in equities, fixed income and every time there is a policy announcement the market is readjusting and I think gold is just a part of that," he said.
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(END) Dow Jones Newswires