It’s clear now that gold staged something of a miracle in 2020 – hitting a new all-time high in August of $US2,074.88 on Comex, while demand slid to an 11-year low.
In fact its more a magician’s sleight of hand – demand down to its lowest level since 2009, as the pandemic drove consumer demand lower, but prices buoyant and record setting at one stage, although the bloom faded late in the year, according to the World Gold Council 2020 report.
The trick worked because of soaring demand from ETFs offset a slump in demand from consumers and industry and weaker but still positive demand from central banks.
The WGC reported that total gold demand fell by 14% in 2020 to 3,759.6 tonnes — the first annual level below the 4,000-metric-ton mark since 2009.
“While demand improved steadily from the severely depleted Q2 total, consumers across the world remained at that mercy of coronavirus lockdowns, economic weakness and high gold prices,” the World Gold Council’s Gold Demand Trends report said.
Thanks to the impact of the pandemic and lockdowns, gold jewellery demand fell 34% in 2020 to 1,411.6 metric tons, a record annual low.
However, investment demand for gold surged 40% to a record annual high of 1,773.2 tonnes, with global gold-backed exchange-traded-fund annual inflows reaching a record 877.1 tonnes in 2020.
Global holdings in gold-backed ETFs ended the year at a record of 3,751.5 tonnes, the report said.
Without the buying support of the ETF’s the gold market would have been a disaster area, along with listed gold miners and their businesses.
The WGC report said that fourth-quarter demand totalled 783.4 tonnes, a drop of 28% from the fourth quarter of 2019, the weakest quarter since the 2008 financial crisis.
The ETF’s though saw an outflow in the final quarter of 130 tonnes as prices dropped sharply in November following positive news of potential vaccines for the COVID-19 virus.
The gold market also saw healthy bar and coin demand. The WGC said that global bullion demand increased by 10% in the fourth quarter and rose 3% for the year to 896.1 tonnes.
A small glimmer of light.
But not from central banks, who have been major gold supporters in the past couple of years, adding to the buying from ETFs.
The WGC said central bank demand dropped sharply in 2020, down 60% to 272.9 tonnes. The decline comes after central bank demand saw two years of record growth.
“Although 2020 marked the 11th consecutive year of net purchasing by central banks, it was the lowest annual total for central bank purchasing since that trend began in 2010,” the report said.
Analysts have noted that central banks worldwide are more concerned about supporting their domestic economies than increasing their gold reserves.
That looks like again being the case in 2021.
On the supply side, total supply dropped 4% last year. “The first annual decline since 2017,” the report said.
Mine production last year totalled 3,400 tonnes, down 4% from 2019.
“This was the second consecutive annual decline in production – and the first back-to-back annual drop since 1975,” the report said.
“COVID-19 pandemic interruptions were the main reason for lower mine production in 2020, and the impact varied both geographically and over time,” the report added.
And there was no joy from recyclers – production from that source only rose 1% which went against previous price booms.
But recycling was a victim of the pandemic and the lockdowns as many gold holders could sell their physical gold jewellery in person.
So they and their bangles, baubles and beads had to stay at home and surprisingly they didn’t flock to buyers in huge numbers when the lockdowns were eased mid-year.
