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(Kitco News) – Record investment demand remains the dominant issue for gold and highlights a growing duality in the market, according to the latest research from the World Gold Council (WGC).
In its Gold Demand Trends for the second quarter, the WGC said investment demand for gold-backed exchange-traded products (ETFs) offset the overall decline in physical demand for metals between April and June. The report says that overall, the physical consumption of gold fell to 1,015.7 metric tons, down 11% compared to the second quarter of 2019.
“The COVID-19 pandemic was again the main influence on the gold market in the second quarter, severely reducing consumer demand while providing investment support. The global response to the pandemic by central banks and governments, in the form of rate cuts and massive injections of liquidity, fueled record flows of 734t in gold-backed ETFs, ”analysts said in the report.
Looking at second-quarter data, the WGC said global gold ETFs recorded inflows of 434 tonnes of the precious metal, nearly matching the quarterly record of 465.7t in the first quarter of 2009 reported during the peak of the global financial crisis. The value of gold in ETFs rose to a record $ 205.8 billion in the first half of the year, the WGC added.
“First half entries topped 2009’s annual record of 646t and lifted global holdings to 3,621 tonnes,” analysts said.
Analysts said that gold in the second quarter is an attractive asset for investors seeking risk coverage against market uncertainty, unprecedented monetary policy action and low interest rates. The significant boost from gold as prices rose 17% in the first half of the year was also a critical factor in attracting new investors.
However, investment demand was practically the only bright spot for total gold consumption in the second quarter.
Turning to other major gold markets, the WGC said demand for coins and physical bars fell 32% in the second quarter, compared to the second quarter of 2019. Overall, the first half of the year saw a drop in the demand for coins and coins at a minimum of 11 years.
The WGC said that, in particular, Thailand was the largest contributor to the annual decline in investment in bars and coins in the second half. Consumers sold their gold en masse as the economy was devastated by the COVID-19 pandemic, according to the report.
“Job losses and lower income levels at a time of rapidly rising gold prices led to increased disinvestment as Thai investors used their gold holdings to finance their financial needs,” analysts said. .
Although major eastern markets saw weak demand for coins and bars, western nations had an insatiable appetite for the physical metal. The WGC said demand for coins and bars in the US increased to 13.8 tonnes in the second quarter, more than quadruple in 2019.
European investors bought a total of 137.4 tonnes of bars and coins in the first half of the year, the highest level in a decade, the WGC said.
Regarding the jewelry market, the WGC said that the demand for jewelry in the first half of the year fell to 572 tons, 46% less compared to the first half of 2019.
“Closing restrictions closed many markets and consumers faced the challenging consequences of the economic downturn at a time when gold prices were increasingly moving, making affordability an issue for many,” said the WGC. .
The two largest gold-consuming nations saw a significant drop in demand for jewelry. The WGC said that Indian jewelery demand experienced an annual drop of 74% to 44 tons. At the same time, China experienced a drop in jewelry demand from 33% to 90.90 tons.
In the United States, the WGC said jewelry demand fell to its lowest level in the second quarter on record at 19.1 tons
“Store closings due to COVID-19 were the clear reason for the decline, which was made even more severe by the fact that the closure encompassed Easter and Mother’s Day, which traditionally see a marked increase in the footprint of jewelry stores, “analysts said. said.
Central bank demand for gold, another major pillar in the gold market, fell 50% in the second quarter to 114.7 tonnes. Although central banks remain net gold buyers, the pace of those purchases has slowed significantly, the WGC said.
“Purchases have become more concentrated, with fewer banks increasing reserves so far in 2020,” analysts said. “We expect central banks to remain net buyers in 2020, but in lower volumes than in the previous two years.”
Finally, the technology sector experienced an annual decrease of 18%, with a demand for gold that totaled 66.6 tons.
While demand for gold fell sharply in the second quarter, so did supply. The WGC said that the total supply from the gold mine fell 15% in the second quarter to 1,034.4 tonnes.
“Strict blockages of coronaviruses in key mining nations throughout H1 were the main cause of the decline,” said the WGC.
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