Gold is gaining strength from consumer demand as the global economy continues to recover, according to the World Gold Council’s most recent quarterly report, released Thursday.
Though gold demand is still down 23% from Q1 2020, it remained roughly on par with Q4 2020, holding steady at 815.7 tonnes.
Jewelry spending was at 477.4 tonnes with a value of $27.5 billion, the highest it has been since the first quarter of 2013. After a year spent in lockdown, this is a substantial recovery, despite the fact that the precious metal is still below the 5-year quarterly average of 505.9 tonnes.
Bar and coin investment soared upwards of 36.6% year over year, due to bargain hunters seeking to take advantage of upcoming inflationary pressures. Last quarter was the third successive quarter of growth, with investment rising to 339.5 tonnes, the highest since Q4 2016.
Central banks continue to keep net buying at healthy levels, with official gold reserves growing by 95.5 tonnes. This comes despite Turkey’s 31.5 tonne sale, largely off the back of Hungary’s 63 tonne purchase. Though this represents a 23% year over year decline, it’s actually a 20% rise from last quarter’s levels.
Mine Production Covering the Drop in Recycling
Mine production featured substantial growth, though overall production of gold fell due to a lack of recycling, in response to weaker gold prices. In Q1, the gold price fell by 10%.
However, strong consumer demand helped provide some support from last year’s levels. The average gold price in Q1 2021 was up 13% from Q1 2020, with consumer demand boosted by the opportunity to purchase gold at lower prices.
The growth in the metal’s consumer demand was offset by strong outflows from gold-backed ETFs. Year-to-date, physical gold ETFs have seen outflows of over $9.6 billion.
With prices remaining down and recycling likely to stay at low levels, there could be some consolidation seen in mining sector; conversely, miners could seize on the opportunity to increase efficiencies in their operations.
For those seeking a buying opportunity in miners, Sprott Gold Miners ETF (SGDM) offers active exposure to gold miners while the Sprott Junior Gold Miners ETF (SGDJ) tracks junior gold miners.
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