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Gold investment demand drops in first quarter
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INDUSTRY

Gold investment demand drops in first quarter

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Gold investment demand drops in first quarter 2021

The drop in gold investment demand in the first quarter of 2021 was due to outflows in gold-backed, exchange-traded funds.

Story by Adella Harding

Mining Correspondent

Global gold demand was down 23% in the first quarter of this year, compared with the first quarter of 2020, especially due to a drop in gold investment demand, according to the World Gold Council’s latest Gold Demand Trends report.

Gold demand was at 815.7 metric tons, compared with 1,083.8 metric tons in the first quarter of last year.

The drop in gold investment demand was driven by hefty outflows in gold-backed, exchange-traded funds as growing expectations of higher interest rates impacted sentiment, with 177.9 metric tons lost, the report states.

Gold Demand Trends says, however, that the effect of the ETF drop was mitigated by the strength of bar and coin demand. Those purchases reached 339.5 metric tons, up 36%, influenced by price-driven bargain hunting and widespread concern over growing inflationary pressures.

Demand for gold jewelry was up in what the World Gold Council called a post-COVID-19 rebound to 477.4 metric tons, up 52% over the first quarter of 2020. Jewelry demand was still 6% below the five-year quarterly average of 505.9 metric tons, however.

“As countries around the world continue their recoveries, economies have started to cautiously reopen. This led to an encouraging return in consumer confidence in Q1, as illustrated by the stellar rise in gold jewelry demand,” said Louise Street, senior markets analyst at the World Gold Council.

“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 U.S. interest rates rose sharply,” she said.

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There were record highs in gold prices in August 2020, reaching $2,000 an ounce, but the gold price declined 10% over the course of the first quarter of 2021. The average gold price was 13% higher than the first quarter of last year, however, according to the report.

“Despite this, gold retains its relevance in well-balanced portfolios, especially with a risk of inflation looming,” Street said. “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.”

In an earlier Goldhub blog for the World Gold Council, Street said that “our research data shows that, globally, almost two thirds of retail investors say that owning gold makes them feel secure over the long term.”

Along with the higher demand for gold jewelry, gold bars and gold coins, Gold Demand Trends reported that there were continued healthy levels of net buying by central banks, at 95.5 metric tons, which is still 23% below the first quarter of 2020.

Total mine supply was down 4% to 1.069.2 metric tons, compared with 1.146.5 metric tons in the first quarter of last year. The supply includes mine production and recycling, as well as hedging.

Mine production was 851 metric tons, up 4% from 816.7 metric tons in the first quarter of 2020, but recycled gold was at 270.2 metric tons, down from 295.0 metric tons. Hedging was at 34.7 metric tons in the first quarter of last year and at a negative 25 metric tons in the 2021 quarter.

Gold Demand Trends states that the “overall fall in supply in the first quarter illustrates the importance of recycling and producer hedging to the gold market. With the gold price more than 10% below all-time highs and easily available supplies of old gold jewelry having already been sold in reaction to the strong up-leg in the gold price to the August 2020 peak, recycling fell 8%,” compared with the first quarter of 2020.

The report also says that producer dehedging offset the increase in production at mines.

“Looking ahead, we believe annual mine production looks set to hit a new all-time high in 2021, barring unexpected disruptions, but recycling is likely to remain subdued,” the report states.

Gold demand for technology uses was up 11% to 81.1 metric tons as consumer confidence continued to recover. The first-quarter demand was just above the five-year quarterly average of 80.9 metric tons, according to the report. 

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