The price of gold has steadily drifted lower through 2022 despite demand growth in several segments of the sector.

Excluding over-the-counter transactions, gold demand in the third quarter was up 28% year over year and up 18% year-to-date over the same period in 2021. However, the price of gold fell 8% during the third quarter as weaker demand from investors in gold-backed exchange-traded funds and over-the-counter transactions followed negative sentiment around a strengthening U.S. dollar and interest rate hikes aimed at curbing inflation.

"Looking ahead, we anticipate central bank buying and retail investment to remain strong, and that could help offset potential declines in over-the-counter and exchange-traded fund investment that may prevail if the dollar strength persists," Louise Street, senior markets analyst at the World Gold Council, said in a Nov. 1 news release. "We also expect to see jewelry demand continue to perform strongly in some regions such as India and Southeast Asia, while the technology sector will likely witness further decline in the face of economic deceleration."

The report's authors wrote that a weak quarter led them to believe that investors have essentially "flushed out" negative sentiment toward gold investment. However, the organization expects investment for the full year to be lower than the previous year.

"The impact of further policy rate hike surprises and U.S. dollar's safe-haven strength may be fading," the report stated. "Furthermore, they have already pushed negative gold price sentiment to historical extremes, paving the way for a reversal in trend as some investors may close short positions in [the fourth quarter]."

Some analysts see the market moving in the other direction. In an Oct. 28 note, TD Securities analysts wrote that gold prices are likely to head even lower as traders expect another interest rate hike from the U.S. Federal Reserve this week.

"The Fed will move aggressively on Wednesday and most likely will signal a continued tightening bias," the TD Securities analysts wrote. "Unless there is some sort of concern over financial stability, the U.S. central bank is unlikely to pivot to a dovish direction."

Central banks bought an estimated 400 tonnes of gold in the third quarter, a record amount that was 115% higher than the prior quarter. Consumers' gold purchases bolstered demand, with jewelry consumption rising 10% year over year and bar and coin purchases increasing 36% in the same period, the report said.

On the supply front, gold mine production increased 2% compared to the third quarter a year ago, marking six quarters of consecutive growth. However, gold recycling was down 6% over the same period.

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