A summary of the “Gold: 2020 Demand Trends & 2021 Market Outlook” webinar, which took place on February 10, 2021 at 11am HKT / SGT
Jaspar Crawley, Head of Distribution, APAC at the World Gold Council, explains why, despite falling demand, the price of gold rose by 25% last year.
Last year was, in a word, difficult. The onset of the COVID-19 pandemic ravaged the gold market, causing disruption throughout the year. Despite this, gold was still one of the year’s best-performing assets, finishing the year 25% higher than the end of 2019, as well as hitting a record high in August of US$2,067/oz. Except for the tech-heavy NASDAQ, gold outperformed all other major asset classes, including equities, global treasuries, and commodities.
Dual Nature of Gold
Gold’s dual nature, both as an investment and a consumer good, has long supported its price. Jewellery and technology demand, accounting for 41% annual average demand over the last decade, is positively linked to economic expansion and income growth. Almost the same amount (42%) is driven by investment demand, which responds well during periods of uncertainty and heightened risk. The remainder is usually absorbed by central banks (17%), which responds to both environments.
Inflows into global gold-backed exchange-traded funds (ETFs) reached an annual record of 877t (US$48bn) in 2020, demonstrating the strength of investor demand for gold at times of heightened risk, ultra-low interest rates, and positive price performance. At the end of 2020, global assets under management in these products totalled US$228 billion.
Retail investment in gold bars and coins was a more mixed picture. Some markets, particularly in Asia, showed a preference for profit-taking/liquidation as the pandemic took hold. Western investors, meanwhile, focused more on adding to their safe-haven holdings of gold. Overall, these differing dynamics led to modest growth in the demand for bars and coins, 3% higher y-o-y.
Jewellery demand was severely affected by the pandemic, slumping 34% y-o-y in 2020 and below 1,500 tonnes for the first time.
Central Banks Remained Net Buyers
Central banks were net purchases for the eleventh consecutive year in 2020, however demand was 59% lower than the multi - decade
record levels seen in 2019. Modest net buying was the result of slowing purchases coinciding with a sharp pick-up in sales volumes.
Production Levels Affected by COVID
It would be remiss not to mention the gold-supply disruption induced by the pandemic. Mine production declined 4% y-o-y in 2020 – the second consecutive annual decline in production – and the first back-to-back annual drop since 1975.
Lower Recycling Levels Overall
When the price of gold rallies, it is common to see holders liquidate some of their jewellery into hard currency. Bearing in mind how sensitive recycling is to sharp changes in the price of gold, the fact the recycling volumes edged up by only 1% was a surprise. There was little evidence of distress selling in 2020 despite the economic impact of the pandemic.
Demand Should Remain Well-Supported
As COVID-19 continues to compound existing risks and produce new ones, we believe the environment for gold remains attractive. Gold remains appealing as a hedge against inflation – with budgets ballooning and deficit concerns mounting, many see the yellow metal as a sensible addition to a balanced investment portfolio.
Consumer demand – jewellery and retail investment – may also benefit should economic growth recover in 2021, particularly in key markets such as China and India. We also expect central bank buying to continue at a moderate pace, although below the record levels seen in recent years.
You will find more analytics on the demand & supply of gold at www.goldhub.com
All the information contained in this document is as of date indicated unless otherwise noted. All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.
The views expressed in this material are the views of Jaspar Crawley, Head of Distribution, APAC at the World Gold Council through the period ended 4 February 2021 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.
All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.
Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities
Investing in commodities entail significant risk and is not appropriate for all investors.
Diversification does not ensure a profit or guarantee against loss.
Nothing contained herein constitutes investment advice and should not be relied upon as such.
Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200.
All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. Standard & Poor’s®, S&P® and SPDR® are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
This website is issued by State Street Global Advisor Asia Limited and has not been reviewed by the Securities and Futures Commission ("SFC").