According to Mining News Pro - The global Covid-19 pandemic fueled the safe-haven investment demand for gold, with gold-backed exchange-traded funds (ETFs) attracting inflows of over 298 t to push global holdings in these products to a record high of 3 185 t.
In contrast, the consumer-focused sectors of the market weakened sharply during this period, with jewellery demand being hit the hardest by the effects of the outbreak, and subsequent lockdowns and physical distancing regulations. Here, the quarterly demand dropped by 39% year-on-year to a record low of 325.8 t.
The pandemic further cut demand, where the jewellery decline is led by a 65% drop in China – the largest jewellery consumer, and also the first market to succumb to the outbreak.
According to WGC market intelligence manager Krishan Gopaul, this is an “understandable” move as consumers have been confined to their homes for their own safety, and retailers having to close owing to various restrictions in efforts to curb the spread of the Covid-19 virus.
Although the decrease in demand is not confined to just that of the yellow metal, Gopaul believes a positive investor sentiment is still rife in the market, as while in contrast to demand numbers, “people were not able to operate normally as you would expect”.
In turn, he advises that the contraction in jewellery demand was “unavoidable” and that the gold market, and the rest of the world, are “facing very exceptional circumstances”.
However, the slump is not expected to last forever, as Gopaul states that the demand recovery rate will likely increase gradually over the course of the next few months.
Further, sharp investment inflows helped push the dollar gold price to an eight-year high, where demand, in value terms, reached $55-billion – the highest since the second quarter of 2013.
The gold price also reached a new record high in Indian rupees and the Turkish lira, besides others.
Central banks, meanwhile, continued to amass gold, although at a slower pace, considering the heightened volatility and uncertainty. Global gold reserves grew by 145 t in the first quarter.
Gopaul notes that this action “speaks to the way in which gold is viewed”, explaining that, despite central banks focusing on the economic impact of the virus and measures that are being taken to minimise and contain the impact thereof, “the need for robust, liquid and diversified reserves is still there, if not more so”.
In fact, he notes that with central banks remaining within the net purchase region, it “highlighted the fact that even in circumstances like these, central banks still feel that gold has a very important role to play in international reserves”.
The sentiment is similar to that of the last decade.
Russia has also announced that it would suspend its long-term buying programme, signalling a slowdown in global net buying for the second quarter and beyond.
Touching on supply, total first-quarter supply fell by 4% as the lockdowns imposed in response to curbing the Covid-19 virus disrupted mine production and gold recycling, as operations were halted at many projects in an attempt to curb the spread of the virus.
Meanwhile, with South Africa to head into a Level 4 lockdown from May 1, and mining companies expected to resume mining up to 50% capacity of their operations, Gopaul warns that, while the global gold supply market has “shown incredible resilience”, it may be too early to make predictions on what this could mean for the South African gold market, and international supply, during the rest of the year.
“However, it is reasonable to assume that South Africa’s production and supply will, overall, be lower year-on-year, but that’s because of the significant impact that Covid-19 has had.”
The council’s report indicates that bar demand weakened to 150.4 t in the first quarter, a year-on-year decline of 19%; while demand in the technology sector also fell, but by 8%, to a new low of 73.4 t.
Recycling, meanwhile, came to a near standstill towards the end of the quarter as consumers were more confined to their homes.
According to WGC market intelligence’s Louise Street, in a statement by the council published on April 30, the Covid-19 pandemic has “had a significant and unprecedented impact on global gold demand”.
She adds that gold demand will continue to feel the effects of the pandemic for the rest of this year.
“In particular, the divergence between investment in gold-backed ETFs and consumers via jewellery will likely continue until there is greater economic and market certainty,” she says.
However, to summarise what the industry has experienced in the first quarter of the year, Gopaul describes it as an example of the “self-balancing nature” of the gold market, where the yellow metal is “doing what it should be doing in the first quarter” – providing liquidity, and a safe haven, in the face of a tremendous amount of uncertainty.
“It’s key to always bear in mind that the safe haven investment sentiment that we’ve seen in the quarter was particularly strong, despite the high levels of uncertainty,” he tells Mining Weekly, adding that the global financial stimulus from a monetary and fiscal level globally “has really helped fuel the sentiment of a safe haven demand, which is key to get an investor perspective on gold and shows that there’s still a huge level of positivity in the gold market”.