European ETFs take sheen off gold

Mumbai: Global gold demand declined by 13 per cent year-on-year to 1,080.8 tonnes during the January-March quarter of this year, mainly due to outflows from European-listed exchange traded fund (ETF) products, according to the World Gold Council (WGC). The total gold demand stood at 1,238.5 tonnes during the first quarter of 2022, WGC’s Gold Demand Trends Q1 2023 stated. Holdings of global gold ETFs fell during Q1, with 29 tonnes outflows in January and February equivalent to a $1.5 billion in outflow, the report said, adding that the majority of outflows came from the European-listed products.

However, North American-listed ETFs, as well as those listed in other regions, witnessed recovery in inflows during the first quarter of 2023, it added.

“The mixed picture for quarter one highlights how gold’s diverse sources of demand underpin its role and performance as a global asset,” WGC Senior Markets Analyst Louise Street said. “Growth in some regions offset weakness in others as different economic forces and demand drivers played out in the global gold market. One commonality was that different types of investors looked to gold as a store of value in uncertain times,” Street added.

She, however, noted that against the backdrop of turmoil in the banking sector, ongoing geo-political tensions and a challenging economic environment, gold’s role as a safe haven asset has come to the fore.

Moreover, it is likely that investment demand will grow this year, especially with waning headwinds from the strong US dollar and interest rate hikes, she said. She further noted that positive demand for gold ETFs has continued in the second quarter so far, and the looming threat of developed market recession may be the trigger for inflows to accelerate later in the year. “Central bank buying is likely to remain strong and will be a cornerstone of demand throughout 2023, even if at lower levels than the record highs seen last year,” she added.

Central banks have helped boost demand adding 228 tonnes to global reserves, a quarter one record high in this data series, compared to 83 tonnes in the same period last year, said the report.

“Central banks of Singapore, China and Turkey were the top buyers, while the Reserve Bank of India also added 7 tonnes to its reserves during the January-March quarter,” said Somasundaram PR, Regional CEO, India, WGC. On the supply side, there was a slight increase in the first quarter to 1,174 tonnes, with marginal 2 per cent growth in mine production and a 5 per cent uptick in recycling driven by the higher gold price. The report further noted that bar and coin investment strengthened 5 per cent year-on-year to 302.4 tonnes compared to 287.7 tonnes in the same period of 2022, although there were notable shifts in key markets. The US bar and coin demand hit 32 tonnes in the first quarter, the highest quarterly level since 2010, and was driven primarily by recession fears and a flight-to-safety amid the banking turmoil, it said. This increase helped offset weakness in Europe and particularly Germany where there was a 73 per cent drop in demand, the stated. Meanwhile, jewellery performance was relatively flat in the first quarter at 477.9 tonne compared to 475.3 tonnes in the corresponding period of 2022, the WGC report said. The report stated that Chinese demand regained ground, reaching 198 tonnes in its first quarter of unfettered consumer activity since lockdown restrictions were lifted.

“Demand in China went up by 16 per cent due to the lifting of restrictions from the lockdown imposed to control the spread of Covid-19 and Chinese New Year,” Somasundaram said.

Meanwhile, demand in India declined as consumption fell by 17 per cent year-on-year to 78 tonnes during January-March 2023, mainly on account of sharp increase in domestic gold prices to over Rs60,000 per 10 grams and continued volatility in price.