STRENGTHENING CONSUMER DEMAND MITIGATES IMPACT OF GOLD-BACKED ETF OUTFLOWS

KUALA LUMPUR, April 29-- The strengthening of consumer demand for gold has mitigated the impact of gold-backed exchange-traded funds (ETFs) outflows, according to the World Gold Council’s (WGC) latest Gold Demand Trends report.

The report revealed that the value of gold jewellery purchased by consumers enjoyed a post-COVID rebound, at 52 per cent year-on-year (YoY) to 477.4 tonnes in the first quarter of 2021 (Q1 2021), buoyed by the decline in the gold price from the record highs seen in August 2020.

Senior markets analyst Louise Street said there was a 10 per cent decrease in the gold price over the course of Q1 2021 which, paired with the global economic recovery, boosted the pro-cyclical elements of gold demand.

“As countries around the world continue their recoveries, economies have started to cautiously reopen and this led to an encouraging return in consumer confidence in Q1, as illustrated by the stellar rise in gold jewellery demand.

“Conversely, having seen investors take shelter in gold from the initial impacts of COVID-19, Q1 2021 saw a selloff in the gold price as confidence in economic recovery grew and the United States interest rates rose sharply,” she said in a statement today.

Despite this, gold retains its relevance in well-balanced portfolios, especially with a risk of inflation looming.

“Looking ahead to the rest of the year, we see reasons to be optimistic about the gold market as its main drivers remain well supported,” she added.

The report indicated that the overall gold demand dropped by a significant 23 per cent YoY in Q1 2021 on the back of hefty outflows in gold-backed ETFs of 177.9 tonnes as growing expectations of higher interest rates have impacted sentiment.

However, the effect of this drop in ETF demand was mitigated by the strength of bar and coin demand.

Such retail gold purchases reached 339.5 tonnes - a 36 per cent growth YoY -- influenced by price-driven ‘bargain-hunting’ and widespread concern over growing inflationary pressures, WGC said. 

Healthy levels of net buying by central banks also continued during the quarter with global official gold reserves growing by 95.5 tonnes, down 23 per cent YoY but increased by 20 per cent on quarterly basis.

-- BERNAMA