Gold Demand Trends Q2 2024

Global gold investment was resilient in Q2, concealing some regional variations 

• Q2 investment demand for gold – bars, coins and gold ETFs – was marginally firmer y/y at 254t
• A 5% y/y decrease in bar and coin investment was wholly due to a 38% drop in demand for gold coins; gold bar investment was 12% higher y/y
• Outflows from global gold ETFs tapered off during the second quarter: holdings declined by just 7t compared with 21t during Q2’23 and represented a marked slowdown from the 113t of outflows seen in Q1.

So-called ‘retail investment’ (individuals’ purchases of small bars and coins) was slightly softer y/y at 261t, although just 4% below its five-year quarterly average of 271t. Bar and coin buying strengthened across Asia as investors were attracted by the high price and, in many cases, currency depreciation highlighted gold’s wealth protection role. This strong Asian retail investment was counterbalanced by far lower levels of net demand in Western markets, where profit-taking/liquidation surged – notably in Europe.

The pace of outflows from gold ETFs slowed sharply in Q2: global holdings declined by just 7t during the quarter, thanks to two consecutive months of inflows in May and June, offsetting April’s losses. In US dollar terms, global assets under management (AUM) grew to US$233bn, reflecting the continued strong gold price performance. Regionally, Western-listed ETFs saw outflows, while funds listed in Asia saw further growth.

The investment picture for gold is incomplete without a review of the ‘OTC investment and Other’ component of demand. This element captures investment flows that take place in the over-the-counter market (separate from central bank OTC transactions).¹ Estimating and attributing this investment buying is difficult due to its opaque nature, but field research strongly supports the data available that puts this at 329t – the strongest quarter since Q4’20. Demand from this sector has been in response to concern over the US debt burden, geopolitical risks and attraction to the strong price rise.

While OTC demand is not directly observable, the positioning of speculative investors in the US futures market can be indicative of it: net long positions held by money managers increased again in Q2, reaching levels not seen since April 2020 at 575t. The trend of gold demand among high net worth individuals across global markets was reportedly a continued contributor to OTC investment in Q2.

ETFs

Total holdings of global gold-backed ETFs ended the quarter 7t lower at 3,105t. Combined May and June inflows of 26t largely offset April’s 33t outflow. Regionally, declines were seen in Europe and North America, while Asia continued to grow – led by China, where record inflows took AUM and holdings to new highs. The small Q2 decline generated H1 losses of 120t – the largest since H1 2013.

Gold ETFs listed in North America saw Q2 modest outflows (-9t), as minor inflows in April gave way to small outflows for the remainder of the quarter. Investors seemed to be caught between positive and negative drivers: geopolitical flare-ups and financial market volatilities encouraged sporadic inflows, while continued strength in the US dollar and the equity market drew investor attention away from gold.

European funds saw disinvestment of 29t in Q2 as May and June inflows partially reversed April’s hefty outflows (-52t). Sentiment early in the quarter was likely driven by investors paring their expectations for early rate cuts from the Bank of England and the European Central Bank, which pushed up yields on both bunds and gilts. Profit-taking inspired by the gold price strength may also have been a contributing factor.

However, interest turned positive in May, putting a stop to the region’s 12-month losing streak, on resurgent expectations of an imminent ECB rate cut. The run of positive inflows extended into June as falling equities and political turbulence stirred up by early elections in the UK and France further encouraged interest in gold.

Asian gold ETFs notched up their largest quarterly inflow on record: holdings increased by 31t in Q2, largely reflecting investment in China. The bulk of these (19t) came in April, although flows were consistently positive throughout the quarter. China was again the driving force of growth, adding 26t (RMB14bn; US$2bn) in Q2 – a fourth consecutive quarterly inflow and the strongest in history.

A strong gold price performance, combined with a sluggish equity market, depreciating RMB and increased promotional efforts by ETF providers, all contributed to the increase. Japan also saw healthy inflows amid attractive local gold price gains, magnified by a weaker yen.

India also witnessed a strong quarter: net inflows of 2t took holdings to 47t – a 24% y/y increase. This positive ETF demand can in large part be attributed to a surge of inflows into multi-asset funds. Gold ETFs have benefited from these inflows, given that multi-asset funds are mandated to allocate at least 10% of their portfolio to each of three asset classes – namely equities, debt and commodities – and the strong gold price performance attracted particular attention in the latter category.

Asia registered inflows of US$3.1bn in H1, significantly outpacing all other markets and the only region witnessing positive flows. This represents the strongest ever H1 for Asian funds, mainly driven by record-level inflows in both China and Japan. Supported by record-breaking inflows and a higher gold price, the total AUM of Asian funds reached US$14bn, the highest ever, while collective holdings increased by 41t.

The opening weeks of Q3 have seen a continuation of modest inflows in both North American- and European-listed funds, while Asian-listed funds have seen a trickle of outflows.

Bar and coin

Q2 saw a 5% y/y drop in global demand for gold bars and coins to 261t. This took the H1 total to 574t, fractionally lower compared to last year. There were, however, divergences within the sector in Q2: bar investment rose 12% y/y to 184t – the highest for a second quarter since 2013 – while demand for gold coins sank 38% to 53t – the lowest quarterly total since Q2 2020. The difference can be explained by the slump in net demand in Western markets (where gold coins are more popular) contrasting with strong investment demand in markets across Asia.

It is important to note that, similar to last quarter, Western investors have continued to show strong interest in gold bars and coins, but this has been countered by equal – if not greater – selling interest as the price reached record levels, resulting in far lower net levels of demand.

But the strong price performance was not the sole driver of robust investment demand. The wobbly economic environment is keeping investor hopes of interest rate cuts alive, particularly after the PBoC cuts earlier this year. The depreciating currency remains another driving factor as domestic investors look to gold for value preservation. Add in equity market weakness and the ongoing turmoil in the property market – once considered a reliable safe-haven – and conditions remain ripe for investors to focus on gold.

It is also worth mentioning that gold accumulation plans (GAP) – where investors can buy and sell physical gold via bank accounts – gained popularity in H1. We believe the ability to easily accumulate and sell physical gold attracted relatively shorter-term and more tactical gold investors.

We are cautiously optimistic on China’s retail gold investment demand in H2. After a disappointing Q2, continued economic volatility could lead to further rate cuts (the PBoC surprised the market with a cut in late July to help bolster the economy).

Gold investment should benefit in this scenario from lower opportunity costs and the need for currency hedging. Meanwhile, structural weakness in the housing market also continues to benefit gold as a preferred alternative safe-haven asset. However, should the gold price remain stable in the second half, the investment motive could be diminished for some, given that the positive price trend was a key driver of bar and coin investment in H1.

India

Indian bar and coin investment in Q2 saw a repeat of the strong Q1, with demand of 43t (+46% y/y). Demand in H1 jumped 37% to 87t – the highest first half since 2014.

The auspicious Akshaya Tritiya festival in May boosted demand for gold investment products, as did bullish price expectations, with investors anticipating a resumption of the upward price trend following a period of correction/consolidation in late May and June.

Investment demand should remain supported as expectations are for further price rallies, with an added boost from the reduced import duty on gold. The healthy monsoon rainfall – so far – will further support demand through its positive effect on rural incomes. That outlook is tempered, however, by the likelihood of profit-taking – or at the least a notable lull in investment – should any gold price sharp rises materialise.

The West

Investment in Western markets remained healthy, but this was countered by a sharp increase in selling-back, resulting in a sharp drop in overall quarterly bar and coin demand.

US investment was very robust at 18t – but nonetheless sharply lower y/y (-48%) due to the comparison with a very strong Q2’23. Healthy buying interest was fuelled by a combination of the high gold price – garnering headlines and attracting investor attention – as well as the environment of elevated geopolitical risk.

But liquidations ramped up, driven by a combination of distress selling (among lower income groups) and profit-taking prompted by gold’s impressive price performance. Premiums on gold investment products continue to feel the squeeze from the softer demand environment.

Demand in Europe was weaker still, although again the net number here disguises a healthy level of fresh buying. Regional demand slumped 65% y/y to 11t, the lowest quarter since Q2’08, before the Global Financial Crisis hit.

German-speaking countries drove much of the decline, but Germany itself was most notable for the fact that investment was net negative (i.e. selling back outweighed fresh buying) to the tune of 2t. The last time this market saw negative investment demand was Q2’04. The profit-taking partly reflects liquidation of gold investments that have been accumulated over a long period, and the trend tapered off following the June pull back in the gold price.

Fresh demand was also restrained by high interest rates and very high gold prices creating affordability challenges amid a cost of living crisis.

ASEAN markets

Gold demand among the ASEAN countries that we monitor individually in Gold Demand Trends remained positive: all saw y/y gains, fuelled in part by currency depreciation.

Investors in Vietnam continued to seek refuge in gold to combat rising inflation, a weaker local currency and the poor performance of the local equity and real estate markets. Bar and coin demand jumped 30% y/y to 12t as a result. Total demand for H1 of 26t was the highest since 2014.

Bar and coin investment in Thailand saw 22% y/y growth to 7t. Investors continued to seek refuge in gold amid continued weakness in the local currency and concerns over economic and political stability. Online platforms for gold investment have gained in popularity, although so far, they have not had a material impact in terms of cannibalising bar and coin demand.

Investment demand in Indonesia rose by 20% y/y to 4t, with investors attracted by the higher price.

The continued erosion of value in the rupiah further encouraged investors to seek protection against currency devaluation.

Rest of Asia

Remarkably, Japanese bar and coin investment was positive in Q2, despite the stellar price performance. Demand of 1.9t during the quarter more than outweighed the 1t of net disinvestment seen in Q1. The y/y comparison was negative, however, as Q2’23 saw a strong positive response to the local price, reaching record highs at that time.

South Korean investors generated another strong quarter of growth in bar and coin demand, up 14% to 4t. That generated an H1 total of 9t, the highest since 2021 as the record price encouraged expectations of further strength.