Investments in gold-backed ETFs climb as demand for jewellery sinks to lowest ever

Total investment demand for gold climbed 98% year-on-year to 583 tonnes in the second quarter of 2020

An employee displays gold bars at a Korea Gold Exchange shop in Seoul. The overall demand for gold has declined in the first half this year. AFP 

Global demand for gold jewellery plunged to a record low in the second half of 2020, but it almost doubled for investments as traders rushed to invest in bullion amid the pandemic-induced economic slowdown.

Total investment demand for gold climbed 98 per cent year-on-year to 583 tonnes in the three months to the end of June. It surged about 90 per cent to 1,131 tonnes in the first half of 2020, the World Gold Council said in its Gold Demand Trends report on Thursday.

Meanwhile, jewellery demand globally slumped for a second consecutive quarter, plunging 53 per cent year-on-year to 251 tonnes, its lowest-ever level. It fell by 46 per cent on annual basis to 572 tonnes in the first quarter, according to the report.

“[The] consumer demand took a brutal hit from Covid-19 in the first [half] of 2020,” Louise Street, who leads World Gold Council’s market intelligence team, said.

“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.”

The consumer-focused sectors will likely remain subdued for the next six months, however, the ongoing economic uncertainty and the threat of further waves of the pandemic mean that “gold’s safe haven status will appeal to investors for the foreseeable future”, Ms Street said.

Net purchases of gold by central banks have also dropped to 233 tonnes during the first half of 2020, 39 per cent below the 2019 record-level. Central banks' purchases fell 50 per cent year-on-year to 115 tonnes during the second quarter of this year as buying became more concentrated, with fewer banks adding to their gold reserves.

Overall demand for the precious metal declined 11 per cent in the second quarter and 6 per cent in the first six months of 2020 to 1,016 tonnes and 2,076 tonnes respectively.

However, inflows into gold-backed exchange traded funds rose in the second quarter, taking the first half inflows to a record 734 tonnes. The first-half tally surpassed the previous annual record from 2009 of 646 tonnes and pushed global holdings of gold-backed ETFs to 3,621 tonnes, according to the report.

Investors have increased their holdings in gold, which is widely considered a safe haven in times of market volatility, amid a slide in US dollar and fears of a second wave of Covid-19.

The US Federal Reserve on Wednesday left rates at near-zero and repeated its pledge to use the “full range of tools” to support the economy as it tries to recover from the economic impact of the Covid-19 pandemic.

“Covid-19 created the perfect storm for gold investment as historic liquidity injections and record low interest rates significantly cut the cost of carrying gold,” Ms Street said.

Gold retreated on Wednesday after a nine-day rally that pushed it to an intraday record of $2,000 an ounce earlier this week. The precious metal has risen 29 per cent since the beginning of this year.