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Gold Demand Up in Q1; Supply Plunges

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Global gold demand was up 1% in the first quarter of the year as extraordinarily strong investment demand offset weakness in consumer markets even as supply dropped.

Overall, gold demand came in at 1,083 tons in Q1, according to data in the World Gold Council Gold Demand Trends Q1 2020 Report. In value terms, global gold demand reached US$55 billion – the highest since Q2 2013. The price also reached new record highs in Indian rupees and Turkish lira, among other currencies.

Gold saw some declines in the early weeks of the pandemic, but, “A concerted round of interest rate cuts, combined with trillions of dollars in both quantitative easing measures and fiscal support, helped lift gold after its initial March pullback.”

Gold-backed ETFs attracted huge inflows of 298 tons last quarter, pushing global holdings to a new record high of 3,185 tons. That’s a staggering 300% increase over 2019. These investment inflows helped push the US dollar price of gold to an 8-year high.

Total bar and coin investment fell to 241.6 tons. That was a 6.6% year-on-year drop. A 19% plunge in gold bar sales drove physical gold demand down. This was primarily due to a sharp decrease in retail sales in China and India. But demand for gold coins jumped with a surge of buying in Western markets. Bullion coin sales jumped by 36% to 76.9 tons.

According to the WGC, the big drop in bar demand reflects weak retail buying in Asian markets.

“Demand for small bars is far more prevalent in East Asian markets, which were among the earliest to be hit by the coronavirus and lockdown measures. Local record high gold prices in these markets also encouraged profit-taking at points during the quarter.”

Anecdotal evidence tells us that demand for physical gold accelerated in April. with shortages of many bullion products.

Central banks continued to buy significant amounts of gold, but not at the record pace we saw in 2018 and 2019. Total central bank purchases came in at a healthy 145 tons.

The coronavirus outbreak hit gold jewelry demand particularly hard. Quarterly sales dropped 39% y-o-y to 325.8 tons, a record low for the World Gold Council data series.  Gold jewelry purchases in China fell off a cliff with a 65% decline. China ranks as the largest jewelry consumer and was the first market to feel the full impacts of the COVID-19 pandemic.

Technology demand also fell to a new low for the WGC data series dropping to 73.4 tons, an 8% year-on-year drop.

On the supply side, mine output plunged to a five-year low of 795.8 tons. The coronavirus lockdowns also put a damper on recycling. Overall, the gold supply dropped by 4%.

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