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Central banks bought 650 tonnes of gold last year, laying a solid foundation for the gold market. This is what the World Gold Council in its report on the gold market in 2018. The global decline in investment gold also increased, with demand for gold coins reaching its highest level in five years.
Retail investors and central banks are buying more gold due to ongoing economic and geopolitical uncertainty. Especially in the second half of the year, the demand for gold increased, helped by turmoil in the stock market.
The World Gold Council writes in its annual report that central banks have not bought as much gold since 1967 as they did in 2018. Countries that were already buying a lot of gold intensified their purchases, while other countries became active again. For example, Poland, Hungary and India for the first time in a long time. Central banks see the precious metal as a safe haven in uncertain times, as it has no counterparty risk.
The following chart shows that central banks have been net buyers of gold since the outbreak of the crisis. Emerging economies in particular are adding more precious metals to their reserves, because these countries still have relatively little gold. Some countries are pursuing an active strategy of De-dollarization, the reduction of dollar reserves in favour of reserves in other currencies and precious metals.
Central banks bought the most gold in fifty years last year (Source: World Gold Council)
Not only central banks sought refuge in gold, private individuals also managed to find the precious metal. Global demand for physical investment gold increased by 4%, which can largely be attributed to increased demand for Gold Coins. A total of 236.4 tonnes of gold in the form of coins were sold last year, the highest volume in five years. It is striking that much more investment gold was bought, especially in Iran. This may have to do with new US sanctions that were imposed last year.
Gold benefited from a fall in the stock market (Source: World Gold Council)
Demand for the precious metal got a boost in the fourth quarter, when the stock market suddenly fell sharply. The chart below shows that the gold ETFs benefited from the turmoil in the stock market. While the stock market fell by about 10%, the gold stocks managed by these funds increased by a similar percentage.
High demand for gold in Iran since return of US sanctions (Source: World Gold Council)
Not only is the demand for gold rising, the supply also seems to be increasing every year. In 2018, the gold mining sector extracted a record volume of 3,346.9 tonnes of gold from the ground worldwide. A decline in production in China, South Africa and Peru was offset by higher production in Australia, Russia and Canada, among others. Production also increased in several West African countries.
Global production of gold mines further increased (Source: World Gold Council)
