The search for safe haven assets led to a rise in gold bar and coin purchases in 2021
A new report by the World Gold Council (WGC) has revealed that demand for the yellow metal increased to 4,021 tons last year. The growth was propelled by fourth-quarter demand, which jumped almost 50% to a 10-quarter high.
“Demand recouped much of the Covid-related losses sustained during 2020,” the WGC said.
Central bank gold buying has far outpaced that of 2020, surging 82% to 463 tons and thus lifting global reserves to a near 30-year high. The pace of buying slowed in the second half, with a 22% year-on-year decline in Q4.
According to the WGC data, demand for gold in the consumer-driven jewelry and technology sectors also recovered throughout the year in line with economic growth and sentiment. Jewelry growth was almost universal. “Gains were fueled primarily by the two global heavyweights – India and China – but decent recovery was also seen across all other regions.”
Meanwhile, global holdings of gold exchange-traded funds (ETFs) fell by 173 tons in 2021, in sharp contrast to 2020’s record 874-ton increase.
“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 fueled a risk-on appetite among some investors, reflected in ETF outflows,” said WGC Senior Analyst EMEA Louise Street.
On the other hand, she said, a search for safe haven assets led to a rise in gold bar and coin purchases, buoyed by central bank buying.
“Declines in ETFs were offset by demand growth in other sectors. Jewelry reached its highest level in nearly a decade as key markets like China and India regained economic vibrancy. We expect similar dynamics to influence gold’s performance in 2022, with demand drivers fluctuating according to the relative dominance of key economic variables,” Street noted.
Deliveries more than doubled as energy crisis tightens grip
The amount of liquefied natural gas (LNG) running from entry terminals to the European gas transmission system has reportedly set a new monthly record in January, hitting the highest for this month since records began in 2011.
Some 405 million cubic meters of gas were delivered to Europe as of January 28, marking an enormous increase of 110% compared to the annual average for this date over the past five years, according to data from the Gas Infrastructure Europe trade group, as quoted by TASS.
The capacities of re-gasification of LNG and further injections of the fuel into pipelines in Europe are currently loaded at 67.4% of the maximum, the group’s data shows.LNG stocks in European gas storage tanks are 5% above the five-year average, which is thought to be quite high for the end of January.
Earlier this week, the WSJ reported that more than two-dozen tankers loaded with LNG were en route from the US to Europe, lured by high prices in the region, with another 33 ships also likely to head to the EU.
The European energy crunch, which has sent gas and power prices soaring, was exacerbated when storage tanks in the EU dropped to their lowest seasonal levels in more than ten years. The decline was attributed to longer-than-usual maintenance at Norwegian fields and to Russia restocking its own inventories.
On January 27, the loading levels of gas reserves in underground storage facilities in Europe dropped to 39.22%, which is 15.6% less than the annual average for this date over the past five years. The storage tanks currently contain 42.34 billion cubic meters, 15.7 billion cubic meters less than in 2021.
Additionally, the latest speculation over probable military conflict between Russia and Ukraine continues fueling concerns about the supply of Russian gas. The US and Western allies have pledged to impose a new series of anti-Russian sanctions in the event of an invasion, the very idea of which has been repeatedly rejected by Moscow. The sanctions, reportedly, may target Russian energy sales.
The nation’s renewable energy sector is expected to grow further
China’s National Energy Administration has announced that 2021 was the fifth consecutive year that newly installed wind and solar farms across the country accounted for over 50% of additional power capacity.
Statistics show new solar farms added a record 54.9 gigawatts of power last year, which is 14% more than in 2020. Wind power capacity growth, however, declined by a third to 47.6GW after a record 71.7GW was installed in 2020. The decline was a result of a tariff subsidies phase-out for onshore wind farms.
The combined wind and solar farms installation volume of 102.5GW last year accounted for 58% of additional power capacity in the country, compared to 63% in 2020 and between 51% and 55% from 2017 to 2019.
“China may have resorted to stabilizing coal supply in the short term, and balancing competing energy goals is still challenging, but it does not mean it is diverting away from its long-term climate change goals,” Miaoru Huang, research director at energy and commodities consultancy Wood Mackenzie, was quoted as saying by the South China Morning Post.
She projected that the nation will add close to 120GW of new solar and wind capacity in 2022, up 20% from last year.
China aims to reach a total wind and solar capacity of 1,200GW by 2030, almost double the 635GW in place at the end of last year. It also plans to increase the contribution of non-fossil fuels to total energy consumption to 25% by 2030.
UN economist warns Russia-Ukraine tensions could push world grain markets to the edge
Current tensions between Russia and Ukraine are expected to have a negative impact on global grain markets, as both countries are among the world’s largest grain producers. However, it’s currently difficult to assess the scale of potential damage as food prices depend on a range of factors, according to Monika Tothova, an economist with the Food and Agriculture Organization of the United Nations (FAO).
“Taking into account the input of both nations into the world market of grain, the tensions between them inevitably influence the situation,” the economist said in an interview with TASS.
According to Tothova, the markets are also deeply dependent on such factors as volatility, climate conditions, costs of production materials, and many others.
“Thus, it is difficult to say exactly what impact we should expect, but certainly the current situation contributes to creating uncertainty in the markets,” Tothova said.
The economist added that much depends on how long the current situation could last and the way it could unwind.
“If further developments affect production, export logistics and other effects on grain markets will be very tangible,” she said.
The economist noted that Russian grain exports currently account for 20% of the global market, while Ukrainian grain currently accounts for around 10%. Nearly 10% of global grain output is produced in Russia, while Ukrainian production amounts to 3% of the world’s output.
A wide range of Western media outlets, along with multiple US officials, have been speculating about an imminent Russian invasion of Ukraine since November 2021. The White House and some US allies threatened the Kremlin with a new round of ‘crippling’ sanctions in the event of a military assault, citing the movement of Russian troops within the country’s vast western territory as evidence of such a plan. Moscow has consistently rejected the accusations, saying it has a right to carry out military maneuvers as it pleases within its own borders.
Domestic output currently meets 47% of nation’s gas demand, industry association says
The UK could become much more vulnerable to price shocks and geopolitical events unless new offshore fields are approved and developed—and the UK’s gas production could plummet by 75% by 2030, the offshore energy industry body OGUK said on Thursday.
Without new investment in new gas fields in the North Sea, the UK will be left more vulnerable to crisis, such as the current one between Russia and Ukraine, the industry association noted.
Additional price shocks would add to the ongoing energy crisis in the UK where gas and power suppliers are going bust, while customers face a cost-of-living crisis when the energy market regulator Ofgem raises the price cap on energy bills as of April 1. The worst is yet to come for consumers in April, when millions of households would be thrown into energy poverty, with many people having to choose between eating and heating.
Domestic production currently meets 47% of the UK’s gas demand, 31% comes from pipeline imports from Europe, mostly from Norway, and 21% from LNG imports. In 2020, Russia supplied 3.4% of the UK’s gas, OGUK said.
According to the industry body, new fields are needed in the UK North Sea to stave off a predicted 75-percent plunge in domestic supplies if no new fields are approved. Many fields remain to be tapped, according to geological surveys. Such fields are estimated to contain oil and gas equivalent to 10-20 billion barrels of oil—enough to sustain production for 10-20 years, OGUK said.
“In the longer term, if UK gas production is allowed to fall as predicted, then our energy supplies will become ever more vulnerable to global events over which we have no control – as we now see happening with Russia’s threatened invasion of Ukraine,” OGUK Energy Policy Manager Will Webster said on Thursday.
