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Pandemic crimps H1 gold demand, down 6% on year: WGC

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Pandemic crimps H1 gold demand, down 6% on year: WGC

Highlights

Markets eyes $2,000/oz

Price continues to hit all-time highs

ETF holdings at records

New York — Coronavirus dented physical gold demand in the first half of 2020, with overall demand down 6% on year, as the price hit fresh all-time highs, according to latest research from industry lobby group the World Gold Council July 30.

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In its latest Gold Demand Trends report WGC said the pandemic affected physical consumer sectors as disposable income dried up and countries went into lockdown, with total demand dropping to 2,076 mt.

However, while overall gold demand fell in H1, there were record flows into gold-backed ETFs of 734 mt. The global response to the pandemic by central banks and governments, in the form of rate cuts and massive liquidity injections, fueled these record inflows.

First half inflows surpassed the previous annual record from 2009 of 646 mt, taking global holdings to 3,621 mt.

Gold has been one of the main talking points of 2020, as the world battles coronavirus and global economies stutter back to life after major lockdown measures.

The metal has so far hit fresh all-time highs, both on the spot and futures markets, with the London Bullion Market Association Gold Price settling on the morning of July 29 at $1,954.35/oz.

"Gold really got off to the races once it broke through those new all-time highs. Everyone is now talking the story up to $2,000/oz. But, I think you'll see some juicy profit-taking once we break that level," a London-based trader said.

ANZ analysts said that a plunge in the dollar has been a major driver for investment demand.

"The dollar is now down more than 8% from its peak in March, as the economic backdrop continues to deteriorate. However, that hasn't been the only thing that has been spurring demand, with real yields turning negative and geopolitical tensions rising sharply," they said.

Dutch bank ING analysts agreed that the main driver continued to be dollar weakness.

Record ETF inflows

WGC said that bar and coin investment fell sharply, driven by Asia, posting a 17% drop to 397 mt in H1.

With global markets in lockdown and consumers deterred by high gold prices and a squeeze on disposable income, jewelry demand fell by 46% to 572 mt and gold used in technology dropped 13% to 140 mt in H1 the report read.

Market intelligence analyst at the WGC, Louise Street, said: "COVID-19 created the perfect storm for gold investment as historic liquidity injections and record low interest rates significantly cut the cost of carrying gold. We witnessed a surge in gold price along with record inflows into gold-backed ETFs in the first half of the year. On the contrary, consumer demand took a brutal hit from COVID-19 in the first of 2020."

Street believes that "consumer-focused sectors of the market will likely remain subdued for the next six months, but ongoing uncertainty and the threat of further waves of the pandemic mean that gold's safe haven status will appeal to investors for the foreseeable future."

Key findings included in the Gold Demand Trends report included:

H1 2020

  • Total investment demand climbed by 90% to 1,131 mt
  • Central banks net purchases fell 39% from 2019's record high to 233 mt in H1
  • Total supply decreased by 6% to 2,192 mt

Q2 2020

  • Overall demand fell in Q2 by 11% year on year to 1,016 mt
  • Total investment demand increased significantly by 98% to 583 mt
  • Global jewelry demand dropped 53% on year to a record low of 251 mt for a second consecutive quarter
  • Central banks net purchases dropped 50% to 115 mt
  • Demand in the technology sector fell by 18% 67 mt
  • Total supply fell 15%