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Global gold demand increases in Q1 2020 amid crisis

posted onApril 30, 2020
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Global demand for gold increased 1% annually to reach 1,083.8 tonnes in the first three tumultuous months of 2020, as worries over a world economic slowdown caused by the coronavirus pandemic drove investors to the safe-haven metal.

Translated to value, global gold demand reached $55 billion, marking the strongest quarter since the second quarter in 2013, a World Gold Council (WGC) report said. The price also reached new record highs in Indian rupees and Turkish lira, among others.

Interest rates in the US, geopolitical tensions and the pandemic spurred demand for the yellow metal traditionally seen as an asset able to hold its value over the long term. 

Gold-backed electronically traded funds (ETFs) attracted huge inflows of 298 tonnes, largely in the US, to push the global holdings in these products to a record high of 3,185 tonnes during the January-March 2020 quarter. These investment inflows helped push the US dollar gold price to an eight-year high. 

Conversely, consumer-focused sectors of the market weakened sharply, as governments across the globe imposed lockdown measures. Jewellery demand, unsurprisingly, was hit hard by the effects of the outbreak and quarterly demand dropped 39% to a record low of 325.8 tonnes.

China, the largest jewellery consumer and the first market to succumb to the outbreak, was hardest-hit by lockdown measures in Q1  and demand  was slashed by 65% y-o-y to 64 tonnes.
In India, gold jewellery demand fell by 41% to an 11-year low of 73.9 tonnes.

In Turkey, jewellery consumption fell by 10% y-o-y in Q1 to 8.6 tonnes while in the Middle East was 9% lower y-o-y at 42.9 tonnes. Q1 saw the first y-o-y decline in US jewellery demand since Q4 2016. 
Jewellery demand in Europe was similarly weak: double-digit declines were common across the region. Q1 demand fell 15% y-o-y to a record low for our series of 10.8 tonnes.  

Total bar and coin investment fell to 241.6t (6% lower 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 76.9 t0nnes, due to safe-haven buying by Western retail investors. 

COVID-19 negatively impacted the entire technology supply chain during Q1, leading to sector-wide falls in gold demand. Technology demand  fell to a new low of 73.4t (8% lower y-o-y). 

The electronics sector recorded a fall in demand, dropping 7% y-o-y to 59 tonnes. Gold used in other technology applications was 13%lower y-o-y at 11.2 tonnes during the quarter, and dental demand continued its decline with a 9% y-o-y fall to just 3.2 tonnes.

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(Graph: World Gold Council)

While central bankers around the globe were focused on unprecedented global financial stimulus, they continued to amass gold, although at a lower rate than in Q1 2019.Amid heightened financial market volatility and uncertainty, global gold reserves grew by 145 tonnes in Q1 2020.

The WGC expects net buying to slow sharply.  Russia announced that it would suspend its long-term buying programme from April, signalling a sharp slowdown in global net buying.The bank gave no reason for the move. Russia has bought more than 1,900 tonnes since 2005- the start of its 14-year buying streak.

The virus also caused disruption to gold supply: mine production fell to a five-year low of 795.8 tonnes (3% lower y-o-y).

"Gold demand will continue to feel the effects of COVID-19 for the rest of 2020. In particular, the divergence between investment in gold-backed ETFs and consumers via jewellery will likely continue until there is greater economic and market certainty," , Louise Street, Market Intelligence at WGC said.