Modern Mining August 2020

Gold price rallies with record ETF inflows

Buying has become more concentrated, with fewer banks adding to reserves so far in 2020. Gold supply was impacted by the pandemic: total H1 supply declined 6% to 2 192 t as both mine production and recycling were affected by lockdown restrictions. Louise Street, market intelligence at the World Gold Council, comments: “COVID-19 created the perfect storm for gold invest- ment as historic liquidity injections and record low interest rates significantly cut the cost of carrying gold. We witnessed a surge in gold price along with record inflows into gold-backed ETFs in the first half of the year,” says Street. “On the contrary, consumer demand took a brutal hit from COVID-19 in the first of 2020. The lockdowns implemented across Asia, Europe and North America severely disrupted the consumer-focused sectors of the market, with jewellery demand falling to unprecedented low levels. Bar and coin investment slowed sharply, as a significant reduction in Asian demand masked the strong surge in Western investment.” 

The COVID-19 pandemic impacted the consumer sectors of the gold market in H1 2020, with total demand dropping by 6% to 2 076 t versus the same period in 2019, according to the World Gold Council’s lat- est Gold Demand Trends report. However, while overall gold demand fell, H1 saw record flows into gold-backed ETFs of 734 t. The global response to the pan- demic by central banks and governments, in the form of rate cuts and massive liquid- ity injections, fuelled these record inflows. The South African Reserve Bank (SARB) has followed suit, cutting interest rates to historical lows in an attempt to shore up liquidity in the domestic markets. In contrast, bar and coin investment declined sharply in Q2 driven by Asian weakness and leading to a 17% decline to 397 t in H1. With global markets in lock- down and consumers deterred by high gold prices and a squeeze on disposable income, jewellery demand fell by 46% to 572 t and gold used in technology dropped 13% to 140 t in H1. Inflows into gold-backed ETFs (gold

ETFs) accelerated in Q2, taking H1 inflows to a record-breaking 734 t. First half inflows surpassed the previous annual record from 2009 of 646 t and lifted global holdings to 3 621 t. The US dollar gold price gained 17% in H1, following a 10% increase during Q2. Strong inflows into gold-backed ETFs fuelled the rise. The gold price reached record highs in numerous other currencies, including euros, sterling, rupee and ren- minbi, among others. Investment in gold coins and small bars slowed sharply in H1 2020, down by 17% to 397 t – the lowest since H1 2009. Steep declines in demand across Asia outstripped growth in the West as investors’ reactions to the pandemic diverged across the globe. H1 jewellery demand halved to 572 t amid the global disruption caused by COVID-19 and in the face of high – and in some cases record – gold prices. The impact of the pandemic was unsparing and Q2 demand fell to an unprecedented 251 t. Central banks bought 233 t of gold during H1, 39% below 2019’s record level.

August 2020  MODERN MINING  7