Arabian Gulf Business Insight - High inflation boosts demand for gold

Demand for gold coins, bars and jewellery soared in the Middle East last year, according to the World Gold Council.

In 2022 demand for gold coins and bars in the Mena region surged 42 percent year-on-year to 77.8 tonnes, the highest annual total since 2018.

“Egypt, Qatar, Iraq, the UAE and Oman significantly boosted their gold reserves,” a World Gold Council report stated.

This buying helped the Middle East’s share of total global demand for gold bars and coins to increase to 6.4 percent in 2022, up from 4.6 percent a year earlier as per AGBI calculations.

Gold is often bought as a hedge against inflation, with demand increasing in countries enduring steep price rises in consumer goods.

In Iran, where annual inflation hit 46.3 percent in January, demand for gold bars and coins rose 64 percent last year to 41.8 tonnes, more than half the Middle East’s 2022 total.

Demand in Egypt, which has also had double-digit annual inflation, jumped 83 percent to 4.4 tonnes.

“Should inflation fall then some slowdown in demand should be expected,” the report stated.

In Saudi Arabia, annual demand for gold bars and coins rose 12 percent to 12.2 tonnes in 2022, outpacing the UAE where demand rose 8 percent to 8.4 tonnes.

Precious prices

Gold prices last week hit a nine-month high following a sharp rally from early November, but have retreated slightly to trade at around $1,930 per ounce as of Wednesday.

Gold could reach $3,000 should the metal breach its all-time peak of $2,075 – achieved in March 2022 – Vijay Valecha, chief investment officer at Century Financial in Dubai, told AGBI in early January.

Investors are seeking safe haven assets amid worries about a global recession and the conflict in Ukraine, but Valecha also noted that further interest rate rises could drag gold prices towards $1,700.

Higher interest rates make gold a less attractive asset because owners only gain from price rises, whereas savings accounts and bonds pay interest to investors.

Analysts and industry leaders periodically forecast a massive rise in gold prices. Bank of America raised its 18-month price target on gold to $3,000 in April 2020.

Demand for gold jewellery in the Middle East rose by 15 percent year-on-year in 2022 to 190.4 tonnes.

The UAE remains the largest regional market for such items, with demand surging 38 percent to 46.9 tonnes as the country accounted for around half the Middle East’s annual increase.

AGBI reported last month that Indians are travelling to Dubai to buy jewellery made in their home country because it costs less in the UAE following the abolition of import duties.

Saudi Arabia ranks second in terms of gold jewellery after demand rose 14 precent to 37.9 tonnes in 2022, while Egypt’s grew 6 percent to 33.6 tonnes. Iran was fourth with 29.9 tonnes, up 13 percent year-on-year.

Meanwhile consumer gold demand in the Middle East rose 22 percent to 268.2 tonnes in 2022. In contrast, total global consumer demand fell 1 percent to 3,303 tonnes over the same period.

These trends enabled the region’s share of global consumer demand to climb to 8.1 percent, up from 6.6 percent in 2021, according to AGBI calculations.

UAE consumer demand for gold climbed 33 percent to 55.3 tonnes in 2022, while Iran’s rose 38 percent to 71.7 tonnes and Saudi’s increased 13 percent to 50.1 tonnes.

The UAE’s consumer demand per capita was 5.24 grammes last year, the second highest globally after Switzerland and nearly quadruple that of Saudi.