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Can the global inflation impact gold run out?

Gold is one of the most revered metals in the Indian culture. From festivals, to weddings to birthdays, no auspicious occasion goes by without making use of this metal.

Can the global inflation impact gold run out?

The unstoppable rise in global inflation, ongoing uncertainty in the financial markets and tensions across the world have caused a massive spike in demand for gold globally, the World Gold Council (WGC) has said in its latest report.

According to figures published by the council, demand for gold had increased by 10 percent in 2021. The demand for gold reached 1,147 tonnes in the last quarter of 2021 which is the highest level since the second quarter of 2019 and a near 50 percent year-on-year increase.

Calling 2021 “a good year for gold”, the WGC analyst, Louise Street, said it is a fact although the price of gold actually declined slightly in dollar terms from January through December.

The report states that the total demand for gold increased from 3658 to 4021 tons and that more was used in jewelry production where demand rose by 67 percent compared to 2020.

On the other hand, the use of gold in industries like laptop and smartphone manufacturing rose by 9 percent to 330 tons.

Throughout history, a total of 201,296 tons of gold have been mined and the most recent estimates claim that 53,000 tons of gold remain in underground reserves according to 2020 numbers – while some sources claim that number to be around 63,000 tons.

At the end of 2020, it was also revealed that it would take 18 years to deplete underground reserves unless new discoveries are made – it is worth noting that the amount of known reserves may increase with new investments and discoveries.

In light of this reality, the same report by WGC stressed the demand of central banks as they remained net purchasers of gold for the twelfth consecutive year. Central banks of both developed and emerging countries added 463 tonnes to their holdings – 82 percent more than in 2020 while lifting the global total to a near 30-year high.

Louise Street said; “Gold’s performance this year truly underscored the value of its unique dual nature and the diverse demand drivers. On the investment side, the tug of war between persistent inflation and rising rates created a mixed picture for demand.”

“Increasing rates fuelled a risk-on appetite among some investors, reflected in ETF outflows. On the other hand, a search for safe haven assets led to a rise in gold bar and coin purchases, buoyed by central bank buying,” she added.

Street also stated that she expects “similar dynamics to influence gold’s performance” in 2022 with “demand drivers fluctuating according to the relative dominance of key economic variables.”

Likewise, the jewelry market’s strength could be hampered if new Covid-19 variants once again restrict consumer access.

India and China create the greatest demand for gold jewelry consumption, accounting for more than 50 percent of global demand in 2020.

Who owns and produces most?

China, Australia, Russia, the US and Peru, are leaders in reserves and among the largest gold producers in the world.

Beijing was the top producing nation, accounting for 11 percent of the global mine production, or 380 tonnes. Russia followed with its production of 329.5 tonnes, while Australia is ranked third with 325.1 tonnes.

After the US, rounding up the top ten producers are Canada, Peru, Ghana, South Africa, Mexico and Brazil.

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