Global economic VUCA fuels gold demand

Gold demand continues to rise despite hitting, and then surpassing, historic price highs. Since March 2024, the gold price has climbed to all-time highs, against all headwinds of a strong U.S. dollar and interest rates that are proving to be ‘higher for longer’. Gold has hit new all-time highs 15 times till mid-April since the onset of calendar year 2024 on the London Bullion Metal Exchange. And yet the demand trend for gold shows no sign of slowing down due to rising prices.

The World Gold Council’s Q1 2024 Gold Demand Trends report reveals that total global gold demand, inclusive of OTC purchases, was up 3% year-on-year to 1,238 tonne, marking the strongest first quarter since 2016.

Several factors behind the recent surge, including heightened geopolitical risk and ongoing macroeconomic uncertainty are driving safe-haven demand for gold. In addition, the continued and resolute demand from central banks, strong OTC investment and increased net buying in the derivatives market, have all contributed to the higher price of gold.

Healthy investment from the OTC market, persistent central bank buying, and higher demand from Asian buyers helped drive the gold price to a record quarterly average of $2,070/oz—10% higher year-on-year and 5% higher quarter-on-quarter. One Ounce is equivalent to 28.35 grams. However, gold demand, excluding OTC, fell 5% to 1,102 tonne in Q1 compared to the same period in 2023, the report states.

Central banks have continued buying gold at a steady pace, adding 290 tonnes to official global holdings during the quarter. Consistent and substantial purchases by the central banks signify gold’s importance in international reserve portfolios amidst market volatility and increased risk.

For the same reasons, gold’s demand for investment purposes also rose as bar and coin demand increased 3% year-on-year, remaining steady at the same levels from Q4 2023 at 312 tonne.

The only form of gold that went against the trend was Gold ETFs as they continued to see outflows with global holdings falling 114 tonne, led by North American and European funds. These outflows were slightly offset by inflows into Asian-listed products. China generated the bulk of the increase due to the weakening local currency and poor performance of its domestic equity market.

The global gold jewellery demand remained resilient, despite record-high prices, only falling 2% year-on-year. Demand in Asia countered decreases in both Europe and North America, says a press release issued by the World Gold Council.

Even on the technology front, demand for gold in technology recovered 10% year-on-year driven by the AI boom in the electronics sector.

On the supply side, mine production increased 4% year-on-year to 893 tonne -- a record first quarter. Recycling also reached the highest level since Q3 2020, jumping 12% year-on-year to 351 tonne, as some investors saw the high price as an opportunity to make profits from the previously purchased gold.

“Interestingly, we are witnessing shifting behaviour trends from Eastern and Western investors. Typically, investors in Eastern markets are more responsive to the price, waiting for a dip to buy, whereas Western investors have historically been attracted to a rising price, tending to buy into the rally,” states Louise Street, Senior Market Analyst, World Gold Council. In Q1, we saw those roles reversed with investment demand in markets such as China and India growing considerably as the gold price surged, Louise Street adds.

Anticipating an even brighter future for gold, The World Gold Council Press Release states, "Looking ahead, 2024 is likely to produce a much stronger return for gold than we anticipated at the beginning of the year, based on its recent performance. Should the price level off in the coming months, some price-sensitive buyers may re-enter the market and investors will continue to look to gold for a safe haven asset as they seek clarity around rate cuts and election results."