Gold demand to slow down temporarily: WGC

Demand for gold in India is likely to slow down in the second quarter (April-June) due to COVID-related restrictions, before rebounding in the second half of 2021, according to the World Gold Council (WGC).

Gold investment demand has already fallen in the first quarter of this calendar year (Jan-March) on hefty outflows in gold-backed exchange-traded funds (ETFs). Expectations of higher interest rates impacted sentiment, according to the World Gold Council’s latest Gold Demand Trends report. The overall global gold in the first three months was 815.7 tonnes, on par with the preceding quarter, but there was a significant (23%) drop year-on-year, as gold-backed ETFs saw 177.9 tonnes of outflows.

The value of gold jewellery purchased by consumers, however, enjoyed a post-Covid rebound, rising to 477.4 tonnes, a 52% annual increase. The increase in consumer demand was buoyed by the decline in the gold price from the record highs seen in August 2020. There was a 10% decrease in the gold price over the course of Q1 which, paired with the global economic recovery, boosted the pro-cyclical elements of gold demand. 

Q1 also saw continued healthy levels of net buying by central banks: global official gold reserves grew by 95.5 tonnes, 23% lower y-o-y but 20% higher q-o-q. Hungary’s large purchase of additional 63 tonnes bolstered Q1 buying, and more than matched Turkey’s substantial sale. Demand for gold for use in technology were 11 per cent annually in Q1 compared to the same quarter the preceding year. 

Louise Street, Senior Markets Analyst at the World Gold Council, commented: “As countries around the world continue their recoveries, economies have started to cautiously re-open. This led to an encouraging return in consumer confidence in Q1, as illustrated by the stellar rise in gold jewellery demand.

“Conversely, having seen investors take shelter in gold from the initial impacts of COVID-19, Q1 2021 saw a sell-off in the gold price as confidence in economic recovery grew and US interest rates rose sharply.

“Despite this, gold retains its relevance in well-balanced portfolios, especially with a risk of inflation looming. Looking ahead to the rest of the year, we see reasons to be optimistic about the gold market as its main drivers remain well supported.”

Key highlights of the latest Gold Demand Trends report for Q1 2021 are:

  • Overall demand (excluding OTC) declined in Q1 by 23% year-on-year to 815.7 tonnes
  • ETFs saw outflows totalling 177.9 tonnes
  • Bar and coin demand was at 339.5 tonnes achieving its best quarter since Q4 2016
  • Global jewellery demand improved 52% from Q1 2020 to 477.4 tonnes
  • Central banks were net buyers of 95 tonnes in the first quarter of 2021
  • Demand in the technology sector grew by 11% year-on-year to 81.1 tonnes
  • Total supply declined 4% year-on-year

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