The Strategist

Demand in gold market moves from consumers to investors

05/05/2020 - 03:20

The coronavirus pandemic has dramatically changed the global demand structure for gold. In the jewelry industry, amid falling sales of jewelry, primarily in India and China, gold is now almost unnecessary. At the same time, professional investors are actively increasing their purchases amid expectations of rising inflation and a global recession.

According to the World Gold Council (WGC), in the first quarter of 2020, the volume of gold supply on the world market amounted to 1.1 thousand tons, which is 4% less than in the first quarter of 2019. As explained by the WGC, many gold mining operations were suspended in an effort to stop the spread of the epidemic. In addition, by the end of the quarter, a drop in demand led to a sharp reduction in gold recycling, as consumers were forced to stay at home.

Quarantine measures hit almost all metal consumers. According to WGC, total consumer demand for the quarter was 567 tons, which is 28% lower than a year ago. The jewelry industry suffered the most: the global demand for gold products has fallen by 39%, to a record low of 326 tons. Most of all, demand for precious jewelry fell in China: a drop of 65% due to quarantine measures taken in the first quarter was noted in the country. In India, demand fell by 41%, to 74 tons.

However, the drop in industrial demand was offset by investment. According to WGC, total investment demand has increased by 80% year on year, to 540 tons. The whole increase was due to exchange-traded funds, which increased investments in gold by almost 300 tons, bringing them to a record 3.18 thousand tons. In the first quarter of last year, ETF bought only 40 tons of gold. Against the backdrop of the risks of a recession in the global economy and fears of rising inflation, professional investors are actively moving into this protective asset. At the same time, the demand of private investors for bullions and coins decreased by 19%, to 150 tons.

Central banks also keep fueling high demand for the metal: in the quarter they acquired 145 tons of gold, as a year earlier. The Central Bank of Turkey became the leader, which acquired 72.7 tons in the quarter against 40 tons a year earlier.