Gold has had a good 2020 so far – up more than 13% so far year to date and topping $US1,700 an ounce for the first time in years.
Gold was up 6% in US dollar terms in the three months to March and kicked rose nearly 6% in April.
It also hit all-time highs in a number of currencies, most notably the Aussie dollar.
The drivers are not hard to find – fears about the impact of COVID-19 and the economic and social lockdowns imposed by governments to slow and end the infections.
That triggered an upsurge in safe-haven interest in gold, as normal at times of rising volatility, but this time it has been helped by a fall in mine production, according to the March quarter report from the World Gold Council, aided by a restriction in supplies of refined metal in Europe with the virus forcing three major refineries in Switzerland to close for a while.
Total gold supply fell 4% to 1,066.2 tonnes, the lowest since the June quarter of 2013.
Mine production fell 3% to 795.8 tonnes in the three months to March – the fifth consecutive quarterly fall in production – a worry for the industry and confirmation that the gold mining industry is finding it harder to boost output.
Total gold investment demand, which includes bars and coins and gold-backed exchange-traded fund investments (ETFs), jumped 80% year-on-year to a four-year high of 539.6 tonnes in the three months to March in the first quarter, the World Gold Council (WGC) said.
That figure included inflows of 298 tonnes for gold-backed ETFs to record-high holdings of 3,185 metric tons for the quarter.
But despite the surge in investment demand, especially from ETFs – the total global first-quarter gold demand only rose 1% to 1,083.8 tonnes in the quarter fro the first three months of 2019.
But while ETFs did well, other areas of investment were mixed – demand for bars slumped, but demand for coins surged.
The WGC said total bar and coin investment fell 6% to 241.6 tonnes as a 19% drop in bar demand – to 150.4 tonnes – overpowered a sharp jump in demand for gold coins, which jumped 36% to 76.9 tonnes, due to safe-haven buying by Western retail investors.
Unsurprisingly, jewelry demand was particularly hard hit by the effects of the outbreak and quarterly demand dropped 39% y-o-y to a record low of 324 tonnes.
Demand for gold fell in China (naturally, given the dramatic lockdowns from late January through March, India where the high world prices saw demand slump ahead of a second blow from the COVID-19 related national lockdown. These saw jewelry fabrication slump in both countries.
And again, not unsurprisingly, technology demand also fell (to a new low for the WGC’s data series) of 73.4 tonnes. That was down 8% from the first quarter of 2019 and will plunge in the June quarter thanks to the slump in business activity.
Central banks continued to buy gold in significant quantities, although at a slower rate than in Q1 2019: net purchases amounted to 145 tonnes, a fall of 8% from a year earlier.
Russia’s decision to stop to suspend its 14-year gold buying operation from April 1 dampened demand which will continue through the rest of the year, according to some analysts.
The WGC said the most significant purchases during the quarter – those of at least one tonne – were from banks who have been consistent recent buyers. Turkey added 72.7 tonnes in the March quarter, boosting gold reserves to 485.2 tonnes, 29% of its total reserves. It was by far the largest buyer during the quarter (it was also the leading buyer in 2019), accounting for 50% of the first quarter’s global total for central banks.
Most central banks now have much larger concerns amid the lockdowns and pandemic – supporting their financial systems and economies to varying degrees.
As well as the 3% fall in production to a five-year low of 795.8 tonnes recycling dropped 4% to 280 tonnes as consumers were trapped in their homes in countries across the globe.
Gold production fell 12% in China in the three months to March. South Africa saw an 11% fall, Argentina, 13% and Peru, 17%. Canada saw a 5% rise with expanded output at several mines offsetting the impact of the shutdowns.
The impact of the virus on mining operations will probably see gold mining production down for the full year. Recycling might get a kick along after the lockdowns are eased and consumers are driven to raise cash to replace the money lost in the closures from low or no wages, consumed savings, and loans.
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.
