Global demand, excluding off-exchange trading or over-the-counter (OTC) transactions, fell 5 per cent to 1,102 tonnes in the first quarter of 2024, according to the World Gold Council’s latest Gold Demand Trends report.
Consumption in Australia dropped to record lows, falling 37 per cent from Q1 2023, with the country deemed an “outlier” in Asia.
“Australians, like most western investors, proved price sensitive and did not buy into the recent gold rally which saw the Australian dollar price of gold jump 11.9 per cent over the quarter, ending at AU$3,397/oz,” observed Shaokai Fan, head of Asia-Pacific (ex-China) and global head of central banks at the World Gold Council.
However, this decline in demand among Australians didn’t exactly reflect on their interests in gold exchange-traded funds (ETFs), he said, noting a more modest decline as Aussies held their gold ETFs relatively steady.
“The regional gold ETF holdings reached 40.5 tonnes in March, a mild 0.4-tonne loss in the quarter and a 0.8-tonne decline year-on-year,” Fan explained.
Globally, gold ETF holdings fell by 114 tonnes to 3,113 tonnes and saw an eighth consecutive quarter of outflows at the end of March. Asian-listed products registered non-stop inflows for the fourth consecutive quarter, countering the quarterly outflows observed in North America and Europe. US-listed funds, meanwhile, saw a positive shift late in the quarter.
The World Gold Council’s latest update provided a unique picture for the much-discussed commodity, which has enjoyed continued momentum, rising 6.3 per cent in Q2 to AU$3,597.9/oz and recording a year-to-date lift of 18.2 per cent.
Although gold ETF holdings declined globally, experiencing an eighth consecutive quarter of outflows, gold’s strong price performance helped assets under management rise to their highest in almost two years at US$222 billion.
Central bank buying
According to the report, with “no let-up” in the pace of central bank buying, total global demand climbed 3 per cent year-on-year to 1,238 tonnes to mark the strongest first quarter since 2016, when accounting for OTC purchases. Demand excluding OTC fell 5 per cent to 1,102 tonnes in Q1 compared to the same period in 2023.
Some net 290 tonnes was added to official central bank holdings, only part of which is reflected in IMF data.
“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 US$2,070/oz –10 per cent higher year-on-year and 5 per cent higher quarter-on-quarter,” the report stated.
“Central banks continued to buy gold apace, adding 290 tonnes to official global holdings during the quarter. Consistent and substantial purchases by the official sector highlight gold’s importance in international reserve portfolios amidst market volatility and increased risk.”
East and Central Asian central banks, particularly Turkey, India, and China, accounted for the majority of net purchases in the first quarter of 2024. According to the report, the People’s Bank of China reported an addition of 27 tonnes to its gold reserves during the quarter.
“With central banks accelerating their gold purchases to above 1,000 tonnes per year in 2022 and 2023, the market is finally beginning to appreciate the importance of their contribution to gold demand,” the World Gold Council observed.
“Accounting for almost a quarter of annual gold demand in both those years, many have attributed central banks’ ongoing voracious appetite for gold as a key driver of its recent performance in the face of seemingly challenging conditions: namely, higher yields and US dollar strength.”
It also identified that “voracious buying” continued into 2024, with the global official gold reserve rising by a net 290 tonnes – the highest Q1 total in its data series going back to 2000, and nearly 70 per cent above the five-year quarterly average.
“In what was an interesting quarter for the gold market, central banks made clear their commitment to the longstanding trend of gold buying. While the recent price rally may have impacted trade execution, for those central banks that manage their gold reserves more actively, we do not expect it will derail any strategic gold accumulation plans they may have,” it said.
“But more data will be needed to better assess how the current price levels may/may not have impacted central bank activity. As such, we retain our view that central banks will remain net buyers in the coming quarters, providing a key pillar of support for gold.”
Outlook for 2024
Looking ahead, the World Gold Council forecast a much stronger return for gold in 2024 than previously anticipated, supported by continued buying from emerging market central banks and retail investment.
“Having made successive record highs throughout March and into April, the gold price has witnessed a correction in recent days, a healthy development in our view,” it explained.
“Any levelling off in the gold price in the months ahead should encourage some price-sensitive buyers back into the market.”
Particularly, it identified upside potential in the gold ETF space as the shift out of gold and into positive yielding bonds in Europe runs its course with the European Central Bank’s rate cuts looming.
ETF investors in North America, meanwhile, might have to wait a little longer as a no-landing economic outcome grows in popularity.
“But US economic strength remains somewhat superficial, helped by the long and variable lags of interest rate policy, the full impact of which may not be felt until later in the year. As such, US investors may need to wait for a clear signal to trigger ETF inflows,” it explained.
