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Central banks have bought much more gold in the first half of this year than last year. The demand for gold jewellery also recovered after a particularly bad corona year. This is what the World Gold Council in a new quarterly gold market report. Still, total global demand for the precious metal in the first half of this year was 11% lower than in the same period last year. Investors sold part of their position in gold ETFs this year, while last year it was still a popular safe haven. The demand for gold coins and bars was higher than last year.
Last year, the gold market was shaken up by the corona crisis. Western investors bought gold ETFs and investment gold in droves, while the jewellery market dried up in large parts of Asia. As a result of this shift in the gold market, the gold price rose and the premiums and delivery times increased further. This year, the market normalized. Some investors sold their positions in gold, while demand for jewellery in key Asian countries recovered somewhat. In this article, we will discuss the most important figures about the gold market.
Demand for gold slightly down in first half of 2021
Last year, sales of gold jewellery fell significantly, as demand for the precious metal fell in key markets such as India and China. In these countries, many people buy gold jewellery as a form of savings, but due to the corona crisis, many people suddenly had no money left to buy jewellery. The Lockdowns didn't help last year either, because it meant that jewellers in many countries had to temporarily close their doors.
Figures from the World Gold Council show that the demand for gold jewellery has increased again this year, but has not yet completely returned to its old level. Global demand in the first half of this year amounted to 873.7 tonnes. That was 17% lower than the average for the past five years. This is mainly due to poor sales figures in India, which was plagued by a sharp increase in the number of corona infections. In terms of volume, global demand for gold jewellery was the lowest since the first half of 2009. In dollar terms, we are back to the level of the first half of 2014.
Sales of gold jewellery pick up again after corona crisis
The outbreak of the corona pandemic, falling stock prices and extremely low interest rates caused a flight to gold in 2020. The positive momentum prompted more investors to step in, which gold ETFs took maximum advantage of. These investment products allow people to take a position in gold via the stock exchange, without physical delivery. This low-threshold form of gold was unprecedentedly popular last year, but had to give up ground this year.
Due to the decrease in Gold price in the first quarter of this year – the biggest quarterly drop since 2016 – many investors decided to sell their positions in gold ETFs. The graph below shows that there were two consecutive quarters of a large outflow, which was only partially compensated by a positive second quarter.
In the second quarter, investors added 40.7 tonnes of gold on balance, less than ten percent of the 427.5 tonnes inflows in the same period last year. Net outflows from ETFs were 129.3 tonnes in the first half of this year, compared to record inflows of 731.2 tonnes in the first half of 2020.
Demand for gold ETFs picks up again
The demand for gold ETFs appears to be strongly influenced by the gold price, but this is much less the case for Physical investment gold. In the second quarter of this year, the demand for Gold Coins and bars to 243.8 tonnes, an increase of 56% compared to the same period last year. For the first half of this year, total demand amounts to 594.5 tonnes. This is 45% more than the same period last year and the highest volume since the first half of 2013.
Investment gold remains popular in the United States and Europe, but demand for coins and bars also picked up in China this year. For Western investors, low interest rates and the Rising inflation reason to buy gold, while Chinese investors benefited from a relatively favorable gold price in Chinese yuan in the first half of this year. Due to an increase in disposable income, the demand for investment gold in both China and India may pick up further in the near future, according to the World Gold Council.
Demand for investment gold reaches highest level since 2013
Demand for its gold investment coins remains substantial
Last year, it seemed for a while that central banks would stop buying gold, but nothing could be further from the truth. In the first half of this year, central banks worldwide bought a net 333 tonnes of gold. That is 63% more than the first half of last year and 39% more than the average per six months over the past five years. This is mainly due to large-scale purchases of Thailand, Hungary and Brazil, because these three countries together bought 207 tonnes of gold.
Thailand bought 90.2 tonnes of gold this year, while Hungary and Brazil added 62 and 53.7 tonnes to their stocks, respectively. Other countries that bought gold were India (29 tonnes), Uzbekistan (25.5 tonnes), Turkey (13.5 tonnes), Cambodia (5 tonnes), Poland (3.1 tonnes) and Mongolia (1.8 tonnes). Only the Philippines sold a substantial amount of 27.2 tonnes in the first quarter. Russia and Germany took a few tons of gold from their strategic stockpile to mint coins. The Russian central bank did not buy any bullion itself, but the Russian sovereign wealth fund did add a substantial amount of gold to its reserves.
Central banks buy more gold again
These countries added gold to reserves
Gold mine production rose 9% in the first half of this year to a new record of 1,783 tonnes. The gold mining sector was less affected by corona measures and also benefited from Record margins. As a result, it was lucrative for many mines to further scale up production. Due to the high prices of raw materials, more gold was also extracted as a by-product, for example in the extraction of copper.
Production costs did increase in the first half of this year, but profit margins are still very healthy. In the first quarter, the average All-in sustaining costs (AISC) at $1,048 per troy ounce, about 6% higher than a year ago.
Gold mines ramp up production again
This contribution was made from Geotrendlines
