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The demand for gold fell slightly in the first quarter of this year compared to the previous quarter. Central banks continue to buy gold at record pace, both in emerging and developed economies. However, due to disappointing demand for jewellery in India and a moderate interest in gold ETFs, the overall demand for gold was somewhat lower. This is evident from new figures from the quarterly report of the World Gold Council.
If we compare the figures of the gold market with those of last year, we see that, on balance, there is still a lot of demand for the precious metal. Central banks continued to increase their gold purchases, while demand for coins and bars exceeded 300 tonnes for three quarters in a row for the first time since 2013. In this article, we list the most important figures from the report.
In the first quarter of this year, savers and investors worldwide again bought a lot Gold bars and Gold Coins. With a total of 302.4 tonnes, the volume in the first quarter of this year was 14% higher than the average per quarter over the past five years. Combined with the relatively high average gold price in the first quarter ($1,890 per troy ounce), this amounted to a value of $18.4 billion.
Due to high inflation and a banking crisis, there was also a lot of demand for investment gold in the first quarter, but remarkably enough, this was mainly due to Turkey, China and Japan, where consumers bought more coins and bars than a year ago. In China, demand even increased by 34% in the first quarter compared to a year ago.
Compared to a year earlier, we saw the biggest decline in Germany, where there was a run on investment gold at the beginning of last year after the Russian invasion of Ukraine. The Banking crisis German savers seem to be less concerned for the time being, but that could change later this year if more banks run into trouble.
Especially in Turkey and China, the demand for coins and bars increased (Source: World Gold Council)
Notably, gold ETFs show a very different pattern. While demand for physical coins and bars has been stabilizing at a relatively high level in the last three quarters, investors have been selling off their positions in gold ETFs over the past four quarters. In the first quarter, European gold ETFs saw their inventories fall by another 40 tonnes.
In the US, however, there was a small inflow into gold ETFs, which may be explained by the banking crisis. To date, this has taken place more in the US than in Europe. Compared to the start of the corona crisis in 2020, interest in gold ETFs has been significantly lower in recent quarters, as the chart below shows. Also the Increased gold price seems to have little effect on demand.
Gold ETFs seem to be losing popularity (Source: World Gold Council)
Central banks bought a net 228 tonnes of gold in the first quarter, meaning they were able to Record pace of last year's gold purchases. Notably, central banks of both emerging and developed economies added precious metals to their reserves.
The biggest buyers in the first quarter were Singapore (+69 tonnes) and China (+58 tonnes), but Turkey also bought a lot of gold (+30 tonnes). India, the Czech Republic and the Philippines have also added several tons of gold to their stocks this year.
Central banks' gold purchases remain in high gear (Source: World Gold Council)
Singapore and China in particular have already bought a lot of gold this year (Source: World Gold Council)
Nearly half of the total global demand for gold comes from jewelry, a market that has been dominated by India and China for decades. In these countries, gold jewelry is seen not only as decoration and luxury goods, but also as a form of savings.
During the corona pandemic, this market collapsed due to lockdowns, but has now largely recovered. In the first quarter, much more jewellery was sold in China, while much less was sold in India. On balance, there was a slight decline in this market segment.
Jewellery market stabilizes (Source: World Gold Council)
More jewellery sold in China, less in India (Source: World Gold Council)
The supply of gold increased slightly in the first quarter of this year due to a 2% increase in gold mine production and a 5% increase in the supply of scrap gold. Worldwide, gold mines extracted a record 856 tonnes of gold from the ground in the first three months of this year.
As the graph below shows, gold mine production seems to be stretched out. Despite the relatively high Gold price And attractive profit margins in recent years have barely succeeded in increasing production further. In some countries, production is being increased even further, but this is often offset by production declines in other countries.
In 2022, the average production cost of gold mines came in at $1,276 per troy ounce, an increase of 18% from the previous year and 14% more than the previous record set in 2012. This is partly due to increased energy costs and personnel costs, but also partly because mines are tapping into more low-grade gold reserves due to the high gold price.
Gold mine production to record high in first quarter 2023 (Source: World Gold Council)
According to the World Gold Council, demand for gold will remain strong for the rest of this year, especially from central banks and retail investors. Investors who prefer physical coins and bars over ETFs more often.
In Europe, the demand for gold is now less strong than last year, as the energy crisis seems to have peaked and the war in Ukraine is perceived less as a threat. But that could change if the banking crisis spills over from the US to Europe and more savers want to secure their wealth by buying gold.
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