The Covid-19 pandemic has disrupted all areas of our lives in 2020, from the social to the economic. The precious metals market has not been an exception and, although it has benefited from the flight of investors towards a safe haven, it has also undergone significant changes. In this post we are going to explain how the structure of the global demand for gold has changed as a result of the pandemic.
As we have already explained from this blog, gold and silver have highlighted their status as refuge assets during the fateful year 2020.
A combination of favorable factors (low interest rates, the fall in the value of the dollar, the threat of rising inflation, uncertainty in the economic field and unprecedented measures in monetary and fiscal policy) has allowed them to appreciate 47% (silver) . and gain 24%, beating its historical maximum price (gold) .
Changes In Demand
However, the Covid-19 pandemic has had an impact on precious metals beyond the rise in their prices. The most striking effect, in terms of the gold market, has been the modification of the traditional structure of the demand for this precious metal.
During the last years, the distribution between the different sectors of the demand has barely changed. As can be seen in the attached graph, prepared by the World Gold Council , in the last decade the jewelery sector has accounted for most of the global demand for gold, with an average of more than 2,000 tons per year .
This demand is dominated by two Asian countries , China and India , where the gold jewelery sector is very powerful.
The second most important sector in terms of demand is investment , both physical (ingots and coins) and on paper (ETF) .
The third place in terms of global demand for gold has been disputed in recent years between the technology sector and the so-called official sector, that is, the central banks .
As can be seen in the graph, in 2010 the technology sector far exceeded the demand of central banks.
However, starting in 2011, the situation changed, as the official sector became a net buyer of gold for its reserves, driven by the significant rise in the metal that year.
Since then, central banks have stabilized as the third sector with the highest demand for gold, behind jewelry and investment.
The years 2018 and 2019 were the best of the decade for the official sector, which increased its gold reserves by more than 650 tons in each of those years.
The global outbreak of the coronavirus has altered the state of the economy on a global scale. The gold sector began to suffer this impact from the end of the first quarter of the year.
The restrictions on international transport and the closure of mines and refineries due to the pandemic control measures adopted by governments caused a veritable earthquake in the gold industry.
For the purposes of the lawsuit, the consequences were notable. According to the Gold Demand Trends report for the third quarter of the year, the latest published by the World Gold Council , demand from the jewelry sector plummeted, that of the technology sector and central banks fell, and that of the investment skyrocketed.
In the absence of data from the last quarter of 2020, the demand from the jewelry sector was barely 333 tons as of September 30, 30% less than on the same dates of the previous year.
The drop was very significant in India , whose jewelry sector went from consuming 101.6 tons of gold in the first nine months of 2019 to just 52.8; that is, 48% less .
In China , the situation was not much better, going from 158.1 tons in September 2019 to 119.1 a year later, 25% less .
The technology sector has also been affected by the economic crisis derived from the pandemic. Its demand for gold at the end of the third quarter of 2020 fell by 6% year-on-year, to 76.7 tons .
Both the closures of industries forced by the control measures of the pandemic, as well as the reduction in spending by consumers, due to the economic crisis, have had a full impact on the sector and have reduced its consumption of gold.
In the case of central banks, the third quarter was an important milestone, since for the first time since 2011 they sold more gold than they bought, becoming net sellers (-12.1 Tm) .
However, from the World Gold Council they recall that the demand for the first three quarters of the year rises to 220.6 tons of gold and that the central banks will continue to be net buyers of gold in 2020 , although in less volume than the previous years.
The main beneficiary of the crisis situation generated by the pandemic has been the gold investment sector.
For the first time in history, the demand for investment gold has exceeded that of the jewelry sector: 494.6 tons, 21% more than at the end of the third quarter of 2019 and exceeding the 33 tons consumed by the jewelry sector.
Investors have launched into the purchase of gold bars and coins, whose sales figure (222.1 Tm) at the end of September exceeded that of the previous year by 49% and became the highest of all time.
Investment in gold ETFs also increased compared to the previous year, although by barely 5%, to 272.5 tons .
The change in the structure of the global demand for gold caused by the pandemic has resulted in a boost from the investment sector , which has taken over from the jewelry sector as the main consumer of the precious metal.
We will have to wait for the closing of the annual data to analyze the true impact of the coronavirus on the demand for gold.
Looking to the future, although it is foreseeable that the investment sector will continue to have a significant presence, it is logical that, as the economic recovery progresses, the jewelery sector will recover its strength.