The World Gold Council (WGC) lowered its demand outlook for gold in the second half of this year after the market witnessed a robust physical demand in the first half.

Key takeaways

"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. The WGC sees demand relatively flat by year-end.”

“Physical gold demand fell by 948 tonnes or 8% compared to the second quarter of 2021. However, physical gold demand in the first half of the year totaled 2,189 tonnes, up 12% compared to the first half of last year.

"Although H1 ended well, with bar & coin, ETF and OTC demand combined posting the third largest H1 since 2010, Q2 set a slightly weaker tone for ETFs, which has continued so far in July. And this may set a precedent for the rest of H2 given a potential softening of inflation amid aggressive monetary policy tightening."

"Although inflation may start to tail off in H2, the supply situation in many commodity markets remains precarious and renewed spikes can't be ruled out. Such an environment would further highlight the safety of gold. After all, gold's relative performance remains solid in 2022, buttressing its diversification benefits compared to other hedges." 

"In addition, geopolitics are always a wild card and remain top of mind for investors. And finally, net investor positioning in futures is historically short, presenting a short-covering risk on a positive price trigger."

"While global jewelry consumption has recovered from the worst of the COVID-induced weakness seen in 2020, it has yet to regain the typical quarterly averages – of around 550t – that characterized the few years preceding the pandemic.”

"Despite healthy Q2 demand, the macroeconomic backdrop of a weaker currency, rising inflation and higher interest rates posed headwinds.”

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