Global gold demand dives to 11-year low amid Covid-19 headwinds

Physical sales fall on movement disruption and higher prices as investor appetite soars

Gold jewellery demand reduced to 1,411.6 tonnes in 2020, a fall of 34 per cent compared to 2019, according to the World Gold Council. Photo: Pawan Singh / The National

Global gold demand dropped 28 per cent annually in the fourth quarter of 2020 to 783.4 tonnes, the weakest performance since the second quarter of the global financial crisis in 2008, the World Gold Council said in a statement on Thursday.

Demand for gold weakened since the onset of the pandemic, resulting in a 14 per cent decline in annual demand to 3,759.6 tonnes. This was the first time annual gold demand fell below 4,000 tonnes since 2009, according to the World Gold Council’s Gold Demand Trends report.

“The impact of the Covid-19 pandemic was felt across the gold market throughout 2020, and Q4 was no different,” Louise Street, senior markets analyst, research at the World Gold Council, said. “Consumers around the world remained at the mercy of lockdowns, economic weakness and high gold prices, resulting in a new annual low in jewellery demand.”

Gold jewellery demand in the three months to December 31 declined 13 per cent annually to 515.9 tonnes and was 34 per cent lower for the year at 1,411.6 tonnes, the report said.

The two largest markets, India and China, contributed the most to the annual decline, which was caused by a combination of the economic impact of the pandemic and record high gold prices.

Investors concerned about depreciating currencies as central banks flooded economies with monetary stimulus flocked to gold as a store of value last year, pushing up its price by about 25 per cent to more than $1,898 per ounce at year-end, having peaked above $2,063 per oz in June.

Gold jewellery demand in the UAE in Q4 fell 20 per cent on an annual basis, but surged 80 per cent compared with the previous quarter as demand from tourists picked up, the WGC's report said.

While jewellery demand volumes are likely to remain relatively subdued in the short term, mass vaccination programmes and signs of improving economic activity may result in tentative improvement in the sector this year, the council said.

Demand from investors meant the amount of gold held in exchange-traded funds and other investment vehicles increased by 40 per cent to a record 1,773.2 tonnes in 2020. Most of the growth came in the form of gold-backed ETFs, but was also aided by physical bar and coin demand growth in the second half of the year.

Annual inflows into gold ETFs reached a record 877.1 tonnes, or $47.9bn, in 2020, despite outflows of 130 tonnes during Q4. The conclusion of the US election removed a key element of uncertainty from the market and encouraged some of the shift out of gold ETFs, as did announcements about successful Covid-19 vaccine trials, prompting a shift into riskier assets like stocks, the report said.

“As we move into 2021, we expect that many of the same underlying drivers of gold demand should remain in place – in particular, ultra-low [interest] rates, fiscal stimulus, lofty stock valuations and the ongoing impact of Covid-19,” the World Gold Council said.

Demand for gold bars and coins grew 10 per cent in Q4 to 268.7 tonnes and by 3 per cent annually to 896.1 tonnes.

Gold buying by central banks, however, slowed sharply by 59 per cent in 2020 to 273 tonnes. Global official gold reserves grew by 44.8 tonnes during the final quarter, more than reversing the 6.5 tonnes of net sales in Q3. Turkey was the largest annual gold buyer, adding 134.5 tonnes to its official gold reserves in 2020. The UAE added 23.9 tonnes to its gold reserves.

Total annual gold supply also took a hit and was 4 per cent lower annually at 4,633 tonnes, the biggest annual decline since 2013. The drop was largely due to coronavirus-related disruptions to mine production, the council said.