Gold demand inched up to 1,083.8 tonnes (t) in Q1, supported by investment

The global COVID-19 pandemic fuelled safe-haven investment demand for gold, offsetting marked weakness in consumer-focused sectors of the market.

Total Q1 demand grew marginally to 1,083.8t (+1% y-o-y). The coronavirus outbreak, which swept the globe during the first quarter, was the single biggest factor influencing gold demand. As the scale of the pandemic – and its potential economic impact – started to emerge, investors sought safe-haven assets. Gold-backed ETFs (gold ETFs) attracted huge inflows (+298t), which pushed global holdings in these products to a new record high of 3,185t. Total bar and coin investment fell to 241.6t (-6% y-o-y) as a 19% drop in bar demand (to 150.4t) overpowered a sharp jump in demand for gold coins, up 36% to 76.9t, due to safe-haven buying by Western retail investors. Jewellery demand, unsurprisingly, was particularly hard hit by the effects of the outbreak; quarterly demand dropped 39% y-o-y to a record low for our series of 325.8t. Technology demand also fell to a new low for our data series of 73.4t (-8% y-o-y). Central banks continued to buy gold in significant quantities, although at a lower rate than in Q1 2019: net purchases amounted to 145t (-8% y-o-y). The virus also caused disruption to gold supply: mine production fell to a five-year low of 795.8t (-3% y-o-y).

 

Coronavirus ignited safe-haven ETF inflows, but undermined consumer demand

Coronavirus ignited safe-haven ETF inflows, but undermined consumer demand

Sources: Metals Focus, World Gold Council; Disclaimer

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Q1 inflows saw a seven-fold y-o-y increase amid global uncertainty and market volatility.

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Demand fell to record lows, led by a 65% drop in China - the largest jewellery consumer and the first market to succumb to the outbreak.

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The pace of buying slowed, in line with our expectations, and sales remained scarce.

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Highlights

Gold ETFs saw the highest quarterly inflows for four years amid global uncertainty and financial market volatility. Holdings of these products reached a record high of 3,185t by the end of Q1.

These investment inflows helped push the US dollar gold price to an eight-year high. Consequently, global gold demand in value terms reached US$55bn – the highest since Q2 2013. The price also reached new record highs in Indian rupees and Turkish lira, among others.

The pandemic slashed jewellery demand as governments across the globe imposed lockdown measures. Demand fell to lowest on record, led by a 65% decline in China – the largest jewellery consumer and the first market to succumb to the outbreak.

Central banks continued to amass gold, although we expect net buying to slow sharply. Amid heightened volatility and uncertainty, global gold reserves grew by 145t in Q1. But Russia announced that it would suspend its long-term buying programme from April, signalling a sharp slowdown in global net buying.

Total Q1 supply fell 4% as coronavirus lockdowns hit mine production and gold recycling. Operations were halted at many projects in an attempt to stem the spread of the virus. And recycling ground to a near standstill towards the end of the quarter as consumers were confined to their homes. 

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