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LAWRIE WILLIAMS: Global gold demand – better and worse

It really depends on which data one takes from the latest quarterly World Gold Demand Trends report from the World Gold Council (WGC) as to whether it is gold positive or not . The data and findings have been assessed by precious metals research consultancy, Metals Focus, and are thus prepared supposedly independently of any WGC bias.  The latest report, covering gold supply and demand in Q1 could possibly be concluded to be both positive and negative, however given in particular that demand appears to be down year on year, but up quarter-on-quarter,  There are, though,  some positive signs emerging from the Q1 2021 figures,

Firstly, the quarter’s global gold demand was estimated at 815.7 tonnes, almost the same as in Q4 2020.  But the big change here is that rising consumer and investment demand almost wholly compensated for the big outflows from the gold ETF sector, which had become apparent in Q4 2020 and had spilled over into Q1 this year.  Gold ETF outflows were still a hefty 177.9 tonnes in Q1, but sales out of these ETFs have now dwindled to a trickle at most.  This bodes well for the future assuming, of course, that big ETF sales do not resume and investment, jewellery and industrial demand hold up.   At the moment sentiment towards gold as an investment asset seems to have turned more positive overall, which should help ward off further ETF sales – or could even reverse the recent trend and see some new deposits.

There has been, therefore, a high volume of sales out of the ETFs and a reduction in central bank gold buying now Russia, in particular, has ceased monthly gold purchases in favour of its gold miners selling their product on the international gold market.  This has had a big positive effect on Russia’s balance of payments given the earlier big price decline for oil and gas, which had been the country’s biggest export earner.  But it has proved negative for global gold demand.

Although overall gold demand was down around 23% on Q1 2020 for the above reasons, it is probably more significant that Q1 jewellery demand at 477.4 tonnes was fully 52% higher year on year.  The WGC report also notes that the value of jewellery spending at US$27.5 billion, was the highest for a first quarter since Q1 2013.

Gold bar and coin investment demand totalled 339.5 tonnes and was up 36%.  The WGC attributes this to bargain-hunting, as well as by expectations of building inflationary pressures – which have so far not really materialised – at least according to official data.

Although lower due to the withdrawal of Russian buying, central bank net purchases held up reasonably well at 95.5 tonnes, 23% lower than a year earlier, but 20% higher than in Q4 2020.  The figure was boosted by Hungary buying some 63 tonnes for its reserves, more than offsetting a reduction of 31.5 tonnes in Turkey’s gold holdings. 

Another useful boost came from technological demand at 81.2 tonnes – up 11% on a year earlier.  The WGC notes that this amount exceeded the five year quarterly average for industrial demand of 80.9 tonnes.

While the WGC’s Gold Demand Trends publications do tend to focus on gold demand as their title suggests, they also publish analysis of gold supply.  Interestingly, despite all the talk of peak gold, new mined gold production in Q1 actually grew to its highest-ever Q1 level at 851 tonnes. The latest estimates indicate that mine production increased by 4% compared with Q1 2020.  To an extent this was due to fewer Covid-19 related interruptions compared to the same period a year earlier, but higher output from North American mines and increased mining rates at Grasberg in Indonesia primarily lifted mine production to its highest Q1 on record. On a quarter-on-quarter basis, production fell by 5% in Q1, though.  It is normally the weakest quarter of the year, due principally to seasonal winter-related fluctuations in Russian and Chinese production.

In China, the world’s largest gold producer, gold output continued to fall and the WGC speculated, as we have done in the past, that China’s No. 1 spot might, in the next few years, be overtaken by Russia, where production has grown recently and looks set for further gains as some large projects are already in the pipeline.  Australia is currently the world’s second largest national gold producer, but its forward plans are not as ambitious as those of Russia.

Although new mined gold output grew year-on-year, global gold supply fell by 4% overall year-on-year (and 17% quarter-on-quarter) due primarily to an 8% annual fall in recycled supply and a small amount of de-hedging.  Producer de-hedging of 25 tonnes contrasts with 34.7 tonnes of new hedging in Q1 2020 and together these falls in global supply more than offset the increase in mine production.  Looking ahead, the WGC/Metals Focus analysts believe annual mine production looks set to hit a new all-time high in 2021, barring unexpected disruptions, but recycling is assessed as likely to remain subdued.

01 May 2021

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