ETFs drive gold price in Q2 as physical demand falls: Refinitiv

As the gold price breaks through US$1,900 per oz., Refinitiv has released its review of the gold sector in the second quarter, providing insight into where the demand is coming from — and where it’s falling.

The review shows that as uncertainty around the Covid-19 pandemic has boosted investor demand for gold in some regions, the rising price has made the yellow metal more expensive in local currencies, leading to decreased demand in some regions and a drop in consumption. At the same time, the pandemic has curtailed gold supply, with mines around the world forced to delay operations or reduce production.

Gold touched an eight-year high of US$1,772 per oz. at the end of June, averaging U$1,711 per oz. in the second quarter, up 31% from the same period last year, it said.

Supporting that price growth was ETF demand, which grew by 361% year-over year, or 436 tonnes, to a new high of over 3,000 tonnes. The numbers are on track to set a new full-year record.

While investment demand surged during the quarter, physical demand fell 36% to 677 tonnes – a low not seen since early 2009. Demand for gold in industrial applications fell by 16%, while official sector purchases declined by 42% to 122 tonnes as Russia and China bowed out as buyers. Jewelry demand cratered by 53% in the second quarter to 240 tonnes, the lowest quarterly level recorded over the past 20 years.

Retail investment (bars and coins) dropped by 2%, with a 58% drop in demand from Asia (notably India) mostly offset by huge surges in demand in Europe (notably Germany) and a 25% year-on-year increase in demand in North America.

Just as the pandemic affected gold demand over the quarter, it also impacted mine production. With almost 130 mines put on care and maintenance or operating at reduced capacity, production dropped by 12% to 762 tonnes. Mines in Latin America and Africa were the most heavily impacted by lockdowns.

“Looking ahead, the overall macroeconomic backdrop remains very supportive for gold,” Cameron Alexander, Refinitiv’s director of precious metals research, said in a news release. “We believe that gold will continue its uptrend, driven by growing concerns over the global economic recession, fears of a second wave of Covid-19, heightened geopolitical tensions, historically low and negative interest rates as well as rising inflationary expectation amidst unprecedented levels of stimulus measures launched by central banks around the globe.”

“Having said that,” he added, “gold remains vulnerable to liquidation in the short term as a move closer to its previous record high level or beyond that may well trigger a wave of profit taking.”

Gold may also come under pressure on signs of a faster economic recovery or less pronounced global economic downturn than currently expected, he said.

Refinitiv, a provider of financial market data and intelligence, forecasts gold will average US$1,715 per oz. this year.

— This article first appeared in the Canadian Mining Journal.