Gold-backed ETFs attract highest Q1 inflows in four years as investors seek safe havens

Overall gold demand held steady in the first quarter, however, as consumer demand plummeted amid Covid-19 movement restrictions

Not all segments of the gold market have gained during the first quarter, with demand for consumer-focused sectors such as jewellery and gold bars weakening sharply. Reuters

Global holdings in gold-backed exchange traded funds swelled to a new record in the first quarter of 2020, attracting the highest quarterly inflows for four years as Covid-19 market volatility drives investors towards safe haven investments.

The Covid-19 pandemic has had a significant and unprecedented impact on global gold demand.

Overall global gold demand held steady in the first three months of the year, rising 1 per cent on the same period last year to hit 1,083.8 tonnes, the World Gold Council said in its Gold Demand Trends Q1 2020 report.

ETF holdings, however, attracted record inflows of 298t to reach a high of 3,185t, a seven-fold year-on-year increase.

“The Covid-19 pandemic has had a significant and unprecedented impact on global gold demand. The modest strength in the first quarter was due to investment demand, fuelled by huge inflows into gold-backed ETFs,” said Louise Street of market intelligence at the WGC.

Gold has rallied in 2020 as investors sought havens amid the economic downturn triggered by the outbreak. The precious metal is now heading for its biggest monthly gain in price since 2016 as central banks ramp up stimulus to repair the economic damage inflicted by the pandemic, boosting the metal’s attraction as a store of value even further.

The first quarter investment inflows, helped push the US dollar gold price to an eight-year high, according to the World Gold Council. The spot price was trading at $1,713.34 at 3.17pm UAE time. As a result, global gold demand in value terms reached $55 billion (Dh44.07bn) – the highest since the second quarter of 2013.

The price also reached new record highs in Indian rupees and Turkish lira, among other currencies, according to the WGC report.

However, not all segments of the market have gained during the first quarter, with consumer-focused sectors weakening sharply. Jewellery demand was hit hard by the effects of the outbreak, dropping 39 per cent to a record low of 325.8t. This was led by a 65 per cent decline in China – the largest jewellery consumer and the first market to succumb to the outbreak.

Consumer-focused sectors of the market have suffered drastically, said Ms Street, as governments across the world implemented movement restrictions to stop the spread of the virus.

Total bar and coin investment also fell to 241.6t, a 6 per cent drop year-on-year. This was because the 19 per cent drop in bar demand to 150.4t overpowered a sharp increase in appetite for gold coins, which rose 36 per cent to 76.9t as Western retail investors turned to safe-haven buying.

Technology demand also took a hit, falling 8 per cent to a new low of 73.4t, according to the WGC’s data.

“Gold demand will continue to feel the effects of Covid-19 for the rest of 2020. 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,” Ms Street said.

Central banks continued to amass gold, although this is now happening at a slower pace, according to the WGC.

Global gold reserves grew by 145t in the first quarter, amid the heightened volatility and uncertainty. Russia, however, said it would suspend its long-term buying programme, signalling a slowdown in global net buying for the second quarter and beyond.

Total supply in the first quarter also took a hit, falling 4 per cent as Covid-19 movement restrictions disrupted mine production and gold recycling. Mine production, for example, fell 3 per cent year-on-year to a five-year low of 795.8t.

“Operations were halted at many projects in an attempt to stem the spread of the virus. And recycling ground to a near standstill towards the end of the quarter as consumers were confined to their homes,” the WGC said.