Gold demand climbed 34% in the first quarter as investors looked for safety from soaring inflation and Russia's invasion of Ukraine, says World Gold Council

• Gold demand jumped 34% in the first quarter of 2022, according to the World Gold Council.
• Gold benefitted from its status as an inflation hedge and a safety play in light of stronger inflation and Russia's war against Ukraine.

Investors sought safety in gold during the first quarter of 2022 as Russia escalated tensions with Ukraine into a full-blown war and as inflationary pressures accelerated, driving up demand for the metal by more than a third, according to the World Gold Council.

The gold market had a "solid start" in 2022 with physical demand rising 34% to 1,234 tonnes from a year earlier, the industry group said in its quarterly report released late Wednesday. That move marked the highest increase since the fourth quarter of 2018, during which global financial markets were confronting trade issues between the US and China, among other developments.

The demand increase was also 19% above the five-year average of 1,039 tonnes.

"An uneasy environment of persistently high inflation and elevated geopolitical risks drove investors to gold, helping to propel prices higher," said the council, noting a 5% rise in the average dollar-denominated price on both a quarter-over-quarter and year-over-year basis.

Physical demand was expressed by the strongest quarterly inflows into gold-backed ETFs since the third quarter of 2020. Holdings soared to 269 tonnes, more than reversing the annual net outflow of 174 tonnes from 2021.

It specifically pointed to the invasion of Ukraine by Russia as a key factor in fueling gold demand and prices, with the metal benefitting from its haven status as the war launched in late February. It also benefitted from its status as an inflation hedge, with inflation rates worldwide marching higher.

In the US, the world's largest economy carried a headline inflation rate of 8.5% in March, the fastest increase since December 1981. Eurozone inflation hit an all-time high of 7.4% last month and the Asian Development Bank has forecast a regional rise in inflation to 3.7% in 2022.

Central banks added to their stockpiles, pulling in 84 tonnes to global official gold reserves during the first quarter. Net buying more than doubled from the previous quarter but fell 29% short of the first quarter of 2021, the council said.

It said jewelry consumption fell from January through March 2022, with demand down 7% to 474 tonnes year-over-year, largely because of softer demand in China and India. The council foresees consumer demand weighed by rising prices and a widespread economic slowdown although overall jewelry demand was still recovering from previous COVID-19 lockdowns.

"On balance, the strong start to the year for investment and the negative economic ramifications of persistently high inflation and war in Ukraine make us confident that investment will be higher this year than last," the group said.