Gold became a bit of an investment orphan in the June quarter, according to the latest global gold demand report from the World Gold Council (WGC).
Despite a rise in consumer demand investment in the precious metal dropped by 60%, according to the WGC as markets and economies continued their recovery and the scarring impact of Covid and the lockdowns in 2020 faded a little.
That left overall global gold demand with a 1% dip during the June quarter at 955.1 tonnes compared to the same period in 2020, following modest inflows into Exchange Traded Funds (ETFs).
Overall gold demand stood at 960.5 tonnes during the same quarter in 2020.
The report revealed that most consumer gold purchases were positive in the June, 2021 quarter as jewellery demand grew by 60% at 390.7 tonnes compared to 244.5 tonnes in the same quarter last year, mainly driven by a rebound in China and India.
The June 2020 quarter saw consumer demand hit hard by the impact of Covid and the lockdowns which closed the important jewellery retail channel in many countries – especially in China.
In the first six months of this year, world gold demand, excluding over-the-counter trades, totalled 1,833.1 tonnes, down 10% year on year, the report said.
The investment segment of gold demand in the first half of the year, which includes bars and coins and gold-backed exchange-traded funds (ETFs), totalled 455.9 tonnes down 60% from the same period a year earlier, when gold ETF inflows were at a record because of the impact of Covid and those lockdowns.
Investment demand fell as prices for gold dropped in the six months.
Based on the most-active Comex contract, gold futures fell 6.6% in the first half of 2021. The current front month Comex December contract settled at $US1,804.60 an ounce on Wednesday.
For the first half of the year, gold ETFs saw an outflow of 129.3 tonnes, compared to record 2020 first-half inflows of 731.2 tonnes.
This year’s June half gold ETF net outflows offset higher demand from central banks, bar and coin investors and jewellery buyers.
Central banks continued to buy gold throughout the June quarter of 2021, as global gold reserves grew by 199.9 tonnes compared to 63.7 tonnes during April-June last year.
‘In the second quarter of 2021, nine central banks including Thailand, Hungary, Brazil were the biggest purchasers during the first half, collectively adding 207 tonnes to their gold reserves,’ the report noted.
Central banks globally bought 333 tonnes of gold in the six months to June, 39% above the average for the period, according to the WGC.
Outflows were “influenced by rising interest rates earlier in the year and renewed risk appetite as the global economy started to recover from the impact of COVID-19,” according to the report.
Gold ETFs gained momentum in the June quarter, but the inflows for the quarter were not enough to offset the heavy outflows witnessed during first quarter.
In the second quarter, gold ETFs saw net inflows of 40.7 tonnes, less than 10% of the “huge” 426.5 tonne inflows seen in the second quarter of 2020 during the depths of the first wave of Covid and the lockdowns when interest rates were slashed, quantitative easing and other stimulus moves were introduced (all the stuff to feed the worst fears of gold bugs).
Surging gold prices also helped drag boost demand from ETFs as the world price rose to a peak on August 7 of $US2,067 an ounce.
Bar and coin investment, however, climbed to the highest since 2013, up 45% year on year to 594.5 tonnes over the first six months of 2021.
China’s bar and coin demand for June, 2021 half almost doubled to 143.3 tonnes from 77 tonnes in the first half of 2020.
Looking ahead, support for gold investment will likely come from “higher inflation, currency debasement, structural changes to asset allocation and attractive entry levels,” according to the WGC
“While the prospect of rising interest rates can still pose a risk, we believe the central banks will take a cautious approach and keep monetary policy loose for some time.”
The WGC estimates jewellery demand in the range of 1,600 to 1,800 tonne for the year to December, well above 2020 levels but below its five-year average.
Investment demand is likely to be in the region of 1,250 to 1,400 tonne, slightly less than last year but in line with the 10-year average, while central banks are expected to continue buying gold in 2021 at the same rate or above that of 2020.
The supply of gold in 2021 is expected to increase modestly, when compared to the previous year, the report added.
Total June quarter gold supply was 13% higher from the same quarter in 2020 and 4% up on the first quarter of 2021.
The council said the industry experienced far less COVID-related disruption than in June, 2020 quarter which was the most interrupted quarter last year.
