How The Global Pandemic Is Affecting Gold

How The Global Pandemic Is Affecting Gold
by: Ben Tseytlin - on Gold & Bullion

During times of crisis, people tend to turn to precious metals. The global pandemic resulting from the coronavirus outbreak is such an event, and both gold and other commodities have been impacted in various ways.

Global Demand For Gold Increased

During the first quarter of the year, demand for gold went up by about 1 percent. The demand for investment is believed to have offset the weakness which occurred in the markets even while supplies fell. Total demand for gold was approximately 1,083 tons during quarter one, as highlighted in data released by the World Gold Council. Total international demand for goal came in at about $55 billion, which is the highest level since the second quarter of 2013. Gold’s price also achieved new highs both for the Turkish lira and Indian rupee.

Initially, both gold and silver prices declined during the pandemic’s early stages, and many experts believe this was due to interest rate reductions and the trillions of dollars which were issued via quantitative easing. In particular, ETFs which are backed by gold brought in about 298 tons during the previous quarter, which pushed total global holdings to the record high of about 3,185 tons. Compared to 2019, this is an increase of approximately 300 percent. It is believed that the investment inflows were responsible for lifting the USD’s price relative to gold to eight year highs.

Coinage And Bars

During emergencies, many people like coinage and bars because they are easy to trade and transport. Although investment in both declined to around 241.6 tons, this was mostly because of a pronounced decline in Indian and Chinese retail sales. At the same time, demand for coins actually increased sharply in the West, with bullion sales rising to around 36 percent, which is roughly 76.9 tons.

The gold bars which are most popular in Asia tend to be the smaller ones, and since this region was hit by the coronavirus early on and the subsequent government shutdowns which followed, Asia experienced record high prices in gold. Gold demand really started to accelerate by April which coincided with the shortages of various bullion products.

Central Banks Haven’t Stopped Buying

So far, the global pandemic has not stopped central banks from stocking up on gold. While the pace is not as frenetic as 2018 or 2019, these financial institutions still managed to acquire approximately 145 tons. The one industry that has suffered greatly is the jewelry market.

Quarterly sales declined by about thirty nine percent year over year to approximately 325.8 tons, and in China, where the virus originated, jewelry purchases decreased most sharply, with a decline of sixty five percent. This is significant since China is the world’s biggest jewelry consumer and was the first to feel the maximum impact of the pandemic. The output from gold mines was also adversely impacted, and fell to a 5 year low at about 798.8 tons.