Growing Demand for Physical Gold in Q1 2021

The most interesting insight from the World Gold Council’s quarterly report is the record demand for investment coins, which reached 95.7 tons in Q1. The overall demand for gold was 815.7 tons, close to the Q4 value.

The first three months of 2021 were marked by an increase in the 10-year Treasury yields, a stronger US dollar, and growing stock market indices. The combined effect caused gold to drop by almost 12%, while the demand for paper gold considerably decreased.

The outflow of assets from gold ETFs reached 177.9 tons, while the share of net long positions in the US futures market fell to the June 2019 low. The price slump had a positive effect, too - consumer demand for gold jewelry in the biggest markets, China and India, increased to 477.2 tons, or 52% more year-on-year than in Q4.

Moreover, the overall retail demand for gold bars and coins jumped to 339.5 tons, the highest value across 17 quarters and higher than the 5-year average. This allowed the price to remain above $1,700 for most of the quarter. The demand for physical gold helped offset the reduction in investments in paper gold.

It should be noted that central banks’ gold reserves grew by 95.5 tons, or 20% more than in the preceding quarter. Hungary was in the lead as its central bank purchased over 60 tons of gold at once.

The demand for gold as the main hedging asset will grow considerably in case of an increase in inflation, new fiscal and monetary aid packages, or an escalation of political conflicts. A combination of these factors could push the price above $2,000 an ounce.

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