Investment Demand for Gold Set Records in 2020

Investment demand for gold set a new record in 2020, but it was not enough to offset a big drop in consumer demand due to the COVID-19 pandemic. Gold demand was up substantially in both ETFs, and for gold bars and coins

Overall, gold demand fell to 3,759 tons in 2020, according to the Gold Demand Trends Full Year and Q4 2020 report by the World Gold Council. That was a 14% drop in annual demand.

But despite the weak overall demand, the price of gold set a record in dollar terms last year and briefly pushed above $2,000 an ounce.

Global investment demand grew 40% to a record annual high of 1,773.2 tons.

Gold-backed exchange-traded funds (gold ETFs) saw record annual inflows in 2020. Global gold holding grew by 877.1 tons and ended the year at a record high of 3,751.5 tons. According to the WGC, evidence suggests that over-the-counter activity was also robust throughout the year. This is not included in their dataset.

Investor demand for physical gold was also up last year. Bar and coin demand grew 10% y-o-y in the fourth quarter, pushing annual retail investment up 3% to 896.1 tons. According to the WGC, demand for gold coins hit a record high.

Official gold coin demand was by far the strongest performing element of retail investment throughout 2020: it reached a record high of 297.6 tons. That is 10% above the previous high of 271t set in 2013 – a time when a precipitous drop in the gold price elicited an unprecedented response from retail investors who took advantage of lower prices to add to their long-term holdings. The growth in retail investment in official coins during 2020 can largely be attributed to consistent strength in investment interest in Western markets.”

Demand for gold bars was down slightly on the year, driven primarily by liquidation during the first half of the year in Asian markets. But there were signs of recovery during the second half of the year. Gold bar and coin demand in China showed a strong recovery in H2, culminating in a 33% y-o-y increase in Q4 demand.

The big drop in global gold demand was primarily driven by the precipitous fall in demand for gold jewelry. Jewelry fabrication accounts for more than half of the yearly gold demand globally. Gold jewelry demand dropped to a record low of 1,411.6 in 2020, a 34% year-on-year decline.

While demand improved steadily from the severely depleted Q2 total, consumers across the world remained at the mercy of coronavirus lockdowns, economic weakness and high gold prices.”

Again, there were some signs of improvement as 2020 came to a close. Gold imports into India recovered to 73.2 tons in December and hit a 19-month high. India ranks as the second-largest gold market, only behind China. Many Indians hold gold in the form of jewelry.

Central bank gold purchases also dropped in 2020. The world’s biggest buyer in 2019 – Russia – stopped purchasing gold completely. Meanwhile, the People’s Bank of China has not reported any gold purchases in 12 months. Many analysts think both Russia and China will reenter the market in the next year.

Gold demand for technological and industrial applications was also unsurprisingly weak due to the pandemic, with signs of a rebound in Q4. On the year, gold demand for tech and industry fell 7% but the fourth quarter charted marginal year-on-year growth.

World Gold Council Director of Investment Research Juan Carlos Artigas told Kitco News he expects investment demand to continue to dominate the gold market.

We expect that low interest rates are here to stay and that is only going to be supportive for gold. Although we have seen a lot of positive news about vaccines for the virus, there is still a lot of uncertainty out there. There are still plenty of risks in 2021 that will continue to support gold.”