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(Kitco News) – Record investment demand remains the dominant theme of gold and underscores the growing duality in the market, according to a recent study by the World Gold Council (WGC).
In gold demand trends for the second quarter, the WGC said that demand for investment in gold-treated commodities (ETFs) was offset by a comprehensive decline in demand for physical metals between April and June. The report notes that overall physical consumption of gold fell to 1,015.7 metric tons, which is 11% less than in the second quarter of 2019.
“The COVID-19 pandemic was once again the main impact on gold in the second-quarter market, greatly reducing consumer demand while providing investment support. The global response to the pandemic of central banks and governments in the form of rate cuts and massive liquidity injections has fueled a record 734 tonnes of gold-backed ETFs, analysts said.
Looking at the second quarter, the WGC notes that the world’s gold ETFs saw an influx of 434 tons of precious metal, which almost coincides with the quarterly record for the quarter of 2009 – 465.7 tons, reported during the global financial crisis. The value of gold stored in the ETF rose to a record $ 205.8 billion in the first half, adds WGC.
“The inflows of the first half exceeded the annual record of 646 tons in 2009 and raised world holdings to 3621 tons,” – say analysts.
Analysts note that gold in the second quarter is an attractive asset for reliable supporters for investors looking for risk to protect against market uncertainty, unprecedented monetary policy measures and low interest rates. An important factor in attracting new investors was also a significant momentum of gold, when prices rose by 17% in the first half of the year.
However, investment demand was almost the only bright spot for total gold consumption in the second quarter.
Looking at other important gold markets, the WGC notes that physical demand for bars and coins in the second quarter decreased by 32% compared to the second quarter of 2019. In general, in the first half of the year the demand for bars and coins fell to an 11-year low.
The WGC said that, in particular, Thailand made the largest contribution to the annual reduction in investment in bars and coins in the second half. According to the report, consumers were selling gold en masse as the economy was devastated by the COVID-19 pandemic.
“Job losses and lower incomes at a time of rapidly rising gold prices have prompted disinvestment as Thai investors have used their gold funds to finance their financial needs,” analysts said.
Although important eastern markets experienced weak demand for coins and bars, Western countries had an insatiable appetite for physical metal. The WGC said that demand for coins and bars in the United States in the second quarter increased to 13.8 tons, more than quadrupled demand since 2019.
European investors bought a total of 137.4 tons of bars and coins in the first half, the highest level in a decade, the WGC said.
Addressing the jewelry market, WGC said that the demand for jewelry in the first half fell to 572 tons, which is 46% less than in the first half of 2019.
“Restrictions on shutdowns have closed many markets, and consumers have faced the dire consequences of the economic downturn at a time when gold prices have been moving from strength to strength, making affordability a problem for many,” the WGC said.
The two largest countries consuming gold have seen a significant drop in jewelry demand. The WGC said that the demand for jewelry in India has seen an annual drop from 74% to 44 tons. At the same time in China there was a decrease in demand for jewelry by 33% to 90.90 tons.
In the US, the WGC said that demand for jewelry fell to its lowest level in a record in the second quarter to 19.1 tons
“The closure of stores due to COVID-19 was a clear reason for the decline, which was even more serious because the closure covered Easter and Mother’s Day. Both traditionally see a significant increase in the number of jewelry stores,” said the analyst.
Demand for central bank gold, another important pillar in the gold market, fell 50% in the second quarter to 114.7 tons. Although central banks remain net buyers of gold, the pace of these purchases has slowed significantly, the WGC said.
“Purchases have become more concentrated, so far fewer banks have added reserves by 2020,” analysts said. “We expect central banks to remain net buyers until 2020, but to a lesser extent than in previous years.”
Finally, the technology sector is experiencing an 18% annual decline, and demand for gold is 66.6 tons.
While demand for gold fell sharply in the second quarter, so did supply. The WGC said that the total supply of gold mines in the second quarter fell by 15% to 1,034.4 tons.
“Severe coronavirus stops in key mining countries during the first half of the year were the main reason for the decline,” the RGC said.
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