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(Kitco News) – According to the latest survey by the World Gold Council (WGC), record investment demand remains the dominant topic of gold and highlights the growing duality in the market.
In its gold demand trends for the second quarter, the WGC stated that investment demand in gold-traded exchange-traded products (ETFs) offset the general decline in demand for physical metals from April to June. The report states that total 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 again a major impact on the gold market in the second quarter, significantly reducing consumer demand while providing investment support. The global response of central banks and governments to the pandemic in the form of rate cuts and large liquidity injections has fueled record flows of 734 tonnes into gold-backed ETFs, analysts said.
Looking at the data from the second quarter, the WGC said that the global gold ETF recorded an influx of 434 tons of precious metal, which almost corresponded to a quarterly record of 465.7 tons for Q1 2009, which was recorded during the height of the global financial crisis. The value of gold held in the ETF rose to a record $ 205.8 billion in the first half of the year, the WGC said.
“The inflow from the first half of the year exceeded the annual record of 646 tons in 2009 and increased global holdings to 3,621 tons,” analysts said.
Analysts said gold in the second quarter is an attractive asset as a safe haven for investors looking to hedge against market uncertainty, unprecedented monetary policy moves and low interest rates. A significant factor in gold, when prices rose by 17% in the first half of the year, was also a decisive factor in attracting new investors.
However, investment demand was the only clear point in total gold consumption in the second quarter.
Looking at other important gold markets, the WGC said physical demand for bars and coins fell by 32% in the second quarter compared with Q2 2019. Overall, demand for bars and coins fell to an 11-year low in the first half of the year,
The WGC said that Thailand in particular was the largest contributor to the annual decline in investment in bars and coins in the second half of the year. According to the report, consumers sold their golden meat because the COVID-19 pandemic reportedly ravaged the economy.
“Job losses and lower income levels at a time of rapidly rising gold prices have led to a sharp drop in investment as Thai investors used their gold holdings to finance their financial needs,” analysts said.
Although there was weak demand for coins and bars in important eastern markets, Western countries had an incredible appetite for physical metal. The WGC said demand for US coins and bars rose to 13.8 tonnes in the second quarter, more than quadrupling demand since 2019.
European investors bought a total of 137.4 tonnes of bars and coins in the first half of the year, the highest level in ten years, the WGC said.
As regards the jewelery market, the WGC stated that demand for jewelery fell to 572 tonnes in the first half of the year, which is 46% less than in the first half of 2019.
“Restricting blockages has closed many markets and consumers have faced the severe consequences of the economic downturn at a time when gold prices have moved from strength to strength, making affordability a problem for many,” the WGC said.
The two largest nations that consume gold have seen a significant decline in demand for jewelry. The WGC said demand for Indian jewelry fell 74% year-on-year to 44 tonnes. At the same time, China saw a drop in demand for jewelry by 33% to 90.90 tons.
In the US, the WGC said demand for jewelry fell to its lowest record level 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 all the more serious because the blockade took place on Easter and Mother’s Day, both of which traditionally see a significant increase in jewelry stores,” analysts said. he said.
Demand for gold in the central bank, another important pillar of the gold market, fell by 50% to 114.7 tonnes in the second quarter. Although central banks remain net buyers of gold, the pace of these purchases has slowed markedly, the WGC said.
“Purchasing has become more concentrated, while fewer banks were added to reserves in 2020,” analysts said. “We expect central banks to remain net buyers in 2020, but in volumes lower than the previous two years.”
Finally, the technology sector saw a year-on-year decline of 18%, with demand for gold reaching 66.6 tonnes.
While demand for gold fell sharply in the second quarter, so did supply. The WGC stated that the total supply of gold mines fell by 15% in the second quarter to 1,034.4 tonnes.
“Strict coronavirus blocking in key mining countries across H1 has been a major cause of decline,” the WGC said.
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