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A Weak Fourth Quarter Sets the Seal on 11-year Low for Annual Gold Demand

In Business
February 06, 2021

The COVID-19 pandemic, with its far-reaching effects, was the driving factor behind gold consumer demand weakness throughout 2020, leading to a 14% decline in annual demand to 3,759.6t. 1 Last year was the first sub-4,000t year since 2009 according to the World Gold Council’s latest Gold Demand Trends report.

Global gold demand dropped by 28% y-o-y to 783.4t in Q4, making it the weakest quarter since the midst of the global financial crisis in Q2 2008. Gold jewellery demand in Q4 fell 13% y-o-y to 515.9t, resulting in a full-year total of 1,411.6t, 34% lower than in 2019 and a new annual low for our data series. While demand improved steadily from the severely depleted Q2 total, the coronavirus continued to impact consumer behaviour.

Conversely, increased uncertainty and policy response to the pandemic supported annual investment demand, which increased 40% y-o-y to a new high for our series of 1,773.2t. Most of the growth came in the form of gold-backed ETFs (gold ETFs) but was aided by bar and coin demand growth in H2. In addition, evidence suggests that over-the-counter (OTC) activity, which is not directly captured in our data set, was also robust throughout the year. However, in Q4 there was a notable decline in investment demand for gold ETFs with outflows totalling 130t.

Total annual gold supply also took a hit and was 4% lower y-o-y (4,633t), the largest annual fall since 2013. The drop can be largely explained by coronavirus-related disruption to mine production, offset by a marginal 1% increase in recycling to 1,297.4t for 2020. Inflows into global gold ETFs reached an annual record of 877.1t (US$47.9bn). An 11- month consecutive run of positive inflows starting in December 2019 came to a halt in November when a recovery in sentiment and gold price drop led to 130t of outflows in Q4. The US dollar gold price returned 25% in 2020 supported by investor demand. After reaching a record high in August across most currencies, the LBMA Gold Price PM dropped back to US$1,762.55/oz at the end of November, before recovering to close the year at US$1,887.6/oz.

Demand for gold bars and coins grew 10% in Q4. A recovery in China and India in the second half of 2020 added to continued strength in Western markets to lift annual demand to 896.1t (+3%). 2020 marked a record low of 1,411.6t for gold jewellery demand. Despite a quarterly recovery in Q4, demand was unable to overcome the continued challenges presented by COVID-19.

Consumer demand includes jewellery, and bar and coin demand. Gold demand includes jewellery, technology, bar and coin, gold ETFs and central bank demand, but excludes over-the-counter activity. Gold buying by central banks slowed sharply in 2020, 59% lower at 273t. Q4 saw a return to modest net buying: global official reserves grew by 44.8t during the quarter, more than reversing the 6.5t of net sales from Q3.

Louise Street, Senior Markets Analyst, Research at the World Gold Council, commented: “The impact of the COVID-19 pandemic was felt across the gold market
throughout 2020, and Q4 was no different. Consumers around the world remained at the mercy of lockdowns, economic weakness and high gold prices, resulting in a new annual low in jewellery demand.

“Nevertheless, despite outflows in Q4, gold-backed ETFs saw record annual inflows due to low interest rates and high levels of uncertainty, highlighting gold’s role as a safe haven asset. Bar and coin demand also saw a strong recovery in the second half of the year, showing that retail investor sentiment remained relatively stable in these volatile markets. Overall, we believe the effects of the pandemic are likely to reverberate into Q1 2021, and possibly beyond.”

The key findings included in the latest Gold Demand Trends report for FY 2020 are as follows:
 Annual demand (excluding OTC) declined to 3,759.6t (-14%), the first sub-4,000t year since 2009
 Record gold ETF inflows totalled 877.1t (US$47.9bn) and global AUM reached 3,751.5t
 Gold bar and coin demand grew 3% in 2020 to 896.1t
 Global jewellery demand declined by 34% y-o-y to 1,411.6t, a new annual low
 Central banks gold buying slowed in 2020, 59% lower y-o-y at 273t
 Demand in the technology sector fell by 7% in 2020 to 307.9t
 Mine production declined 4% y-o-y
 Recycling increased only marginally by 1% y-o-y

The key findings included in the latest Gold Demand Trends report for Q4 2020 are as follows:
 Overall demand in Q4 declined by 28% year-on-year to 783.4t
 Gold-backed ETF saw outflows of 130t in Q4
 Gold bar and coin continued to see strong demand and increased by 10% y-o-y
 Global jewellery demand continued to improve from the record low in Q2 but was 13% lower year-on-year at 515.9t
 Central banks returned to net buying, adding 44.8t to global holdings
 Demand in the technology sector grew marginally to 84t