SINGAPORE (Apr 30): Global demand for gold-backed Exchange Traded Funds (ETFs) hit an all-time high of 3,185 tonnes in 1Q2020 ended March as more investors turned to the safe-haven asset in the wake of the Covid-19 pandemic.

This brings ETF assets under management (AUM) to a record high US$23 billion ($32.4 billion), the World Gold Council (WGC) reported in its 1Q20 Global Demand Trends report published on Thursday.

The main ETFs are SPDR Gold, Invesco Physical and iShares, the mine producer research and lobby organisation pointed out.

1Q20’s 298 tonne increase in ETF demand marks the highest quarterly growth for ETF holdings. On a year-on-year basis, it is over 300% higher than the 42.9 tonnes held at end 1Q19.

Interestingly, WGC notes inflows of the asset started off as moderate this year, but picked up amid Brexit woes in mid-January before sky-rocketing in February when Covid-19 concerns spiked.

Retail investors too flocked to the precious metal, increasing their holdings in the form of bars and coins.  

Geographically, Europe’s gold retail investments soared 53% to 65.1 tonnes making it the region with the highest purchases. Meanwhile, Turkish investors scooped up 27% more units, pushing holdings there to 21.2 tonnes, while US’ investments more than doubled to hit a three-year high of 14.9 tonnes.

Conversely, the precious metal lost its shine in Asia with Thailand logging the weakest purchases of -73% to 5.7 tonnes. Japan followed suit, continuing its fifth quarter of negative investment with 6.5 tonnes in holding.

Overall demand was also fueled by central bank action such as the US Federal Reserve’s Rate cuts, as well as the ‘bazooka’ fiscal support and quantitative easing measures adopted by governments globally.

These collectively pushed the US dollar gold price to US$55 billion – the highest it has been since 2Q2013.

However, this also meant that there was lower demand for gold jewelry as cost-conscious households cut back on their purchases of these non-essential items. 1Q20 brought 325.8 tonnes of gold jewelry purchases, down 39% year-on-year and the lowest level it has fallen to.

In value terms, this translates to a US$16.6 billion drop, the lowest since the aftermath of the Global Financial Crisis (GFC) in 2Q2010.

Specifically, the decline was heralded by a 41% drop in purchases from India to 73.9 tonnes, and a 65% dip from China to 64.0 tonnes. This comes amid the lockdowns and social distancing measures imposed in these countries, who traditionally scoop up a lot more gold jewellery.

The meagre demand from the two countries follows retailers’ valiant use of online marketing and livestreaming services to promote their collections, WGC observes. It adds that more of such platforms will be adopted in the coming months, which can possibly see a pick-up in demand for jewellery in the current quarter.

A concern now is that the supply of gold has been hampered from disruptions to mine production and recycled gold, WGC points. 

Total supply of physical gold dipped 4% year-on-year to 1,066.2 tonnes – making it the lowest level of quarterly supply since 2Q2013.

Specifically, China – the first country to impose stringent quarantine restrictions – saw a 12% year-on-year drop in production, mainly led by the quarantine easing in late March.

Other key production houses such as Peru (-17%), Argentina (-13%) and South Africa (-11%) are alsoa feeling the heat of the health measures imposed.

These dips were mitigated by ramped up supplies from countries such as Ecuador where mine production leapt 51% before its operations were temporarily suspended in end March.

Looking ahead, the WGC expects the precious metal to remain a safe-haven asset, especially in the wake of the economic uncertainties and severe global recession expected this year.

“Uncertainty around the short- and long-term economic impact of Covid-19 continues to drive sharp volatility across many assets, with oil prices slumping, global equities fluctuating well below recent highs and safe havens like US treasuries and gold witnessing strong inflows,” observes WGC.

“The first few weeks of April have seen strong inflows continuing into gold-backed ETFs, taking holdings to fresh highs,” it adds.

Indeed, gold prices have been inching up, particularly following announcements on the US Federal Reserve’s rate cuts in the last month.

In fact, the Fed’s April 29 decision to keep rates unchanged till the health and economic crisis abates, provided fodder for gold prices.

See : US Fed keeps rates unchanged and pledges to maintain it till economy improves

Gold prices bounced from a low of US$1,690 on April 28, to hit US$1,710 per ounce. As at 2.22pm, it was up 22.05 basis points or 1.29% to trade at US$1,735.45 per ounce.

With central banks – like the Fed -  increasing liquidity in financial markets the gold market is set to benefit further says Phillip Futures analyst Avtar Sandu.

“Gold remains as a safe-haven as currencies are being devalued by massive stimulus programs introduced by central banks and governments around the world to alleviate the worst of the Covid-19 outbreak,” he observes.

“Uncertainty continues to weigh on risk sentiment, which is positive for gold in the longer-term”.