Gold rallies with record ETF inflows after COVID-19 impacted consumer demand in H1

"The lockdowns implemented across Asia, Europe and North America severely disrupted the consumer-focused sectors of the market" Louise Street, Market Intelligence at the World Gold Council, said

  
A visitor touches a 12.5 kilo gold bar during a preview day at the German Bundesbank Money Museum prior to its December 17 public opening in Frankfurt, Germany, December 15, 2016. Picture taken December 15, 2016.

A visitor touches a 12.5 kilo gold bar during a preview day at the German Bundesbank Money Museum prior to its December 17 public opening in Frankfurt, Germany, December 15, 2016. Picture taken December 15, 2016.

REUTERS/Ralph Orlowski

The total demand for gold dropped by 6 percent to 2,076 tonnes in H1 2020 compared to the same period in 2019, due to the impact of the COVID-19 pandemic on consumer sectors of the gold market.

However, while overall demand for the precious metal fell, H1 saw record flows into gold-backed ETFs, amounting to 734 tonnes. These inflows were fuelled by the rate cuts and massive liquidity injections by central banks and governments around the world, the World Gold Council said in its latest Gold Demand Trends report.

Louise Street, Market Intelligence at the World Gold Council, said: “COVID-19 created the perfect storm for gold investment as historic liquidity injections and record low interest rates significantly cut the cost of carrying gold. We witnessed a surge in gold price along with record inflows into gold-backed ETFs in the first half of the year. On the contrary, consumer demand took a brutal hit from COVID-19 in the first of 2020."

In contrast, bar and coin investment declined sharply in Q2 driven by Asian weakness and leading to a 17 percent decline to 397 tonnes in H1. Jewellery demand fell by 46percent  to 572 tonnes due to high prices and the lockdown imposed in several countries.

"The lockdowns implemented across Asia, Europe and North America severely disrupted the consumer-focused sectors of the market, with jewellery demand falling to unprecedented low levels. Bar and coin investment slowed sharply, as a significant reduction in Asian demand masked the strong surge in Western investment," Street said.

The US dollar gold price gained 17 percent in H1, following a 10 percent increase during Q2. Strong inflows into gold-backed ETFs fueled the rise. The gold price reached record highs in numerous other currencies, including euros, sterling, rupee and renminbi, among others.

According the WGC report, gold supply was impacted by the pandemic: total H1 supply declined 6 percent to 2,192 tonnes as both mine production and recycling were affected by lockdown restrictions.

Middle East and Turkey

Gold jewellery demand in Turkey plummeted 69 percent in Q2, down to just 3 tonnes –  Jewellery retailers in lockdown, combined with record high local gold prices, put a virtual stop to demand in April and May. June’s reopening saw the release of some pent-up demand, but the rebound was short-lived as gold prices climbed again.

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Severe losses across Middle Eastern markets resulted in a 69 percent drop in Q2 demand for the region, down to 13.6 tonnes. The UAE suffered the most drastic y-o-y decline, down 86 percent to 1.3 tonnes, as market lockdown eradicated tourist purchases, while domestic demand was quashed by high gold prices, job losses and the weak economic environment.

Demand in Iran continued to deteriorate as the rial lost further ground against the dollar and the pandemic added to the sanction-hit country’s economic challenges. A 66 percent y-o-y fall in Q2 demand fed through to a 40 percent H1 decline, to 10.2 tonnes.

“The consumer-focused sectors of the market will likely remain subdued for the next six months, but ongoing uncertainty and the threat of further waves of the pandemic mean that gold’s safe haven status will appeal to investors for the foreseeable future,” Street said.

(Writing by Seban Scaria; editing by Daniel Luiz)

(seban.scaria@refinitiv.com)

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