Robust central bank buying bolsters first quarter demand for gold, says WGC report

With the price near record average highs for the quarter at $1,890/oz, a mixed picture
for gold in Q1 exemplifies its diverse and global sources of demand. In comparison,
jewellery was relatively flat in the first quarter

The World Gold Council’s latest Gold Demand Trends report reveals that while gold demand
(excluding OTC) was 13% lower year-on-year, a recovery in the OTC market propped up
total gold demand to 1,174 tonnes, a slight 1% increase compared to Q1 in 2022.
Central banks helped boost demand adding 228 tonnes to global reserves, a Q1 record high
in this data series. Sustained and significant purchases from the official sector underscore
gold’s role in international reserve portfolios during times of market volatility and
heightened risk.
In comparison, jewellery was relatively flat in the first quarter at 478 tonnes. Chinese
demand regained ground, reaching 198 tonnes in its first quarter of unfettered consumer
activity since lockdown restrictions were lifted. This offset weakened demand in India,
where consumption fell by 17% year-on-year to 78t in Q1 2023. The sharp increase in
domestic gold prices was the primary factor impacting purchases. Investment demand was
a chequered landscape in the first quarter. Renewed gold-backed ETF inflows in March,
driven primarily by systemic risk in the US economy, partially countered outflows in
January and February and helped bring quarterly outflows down to a modest 29 tonnes.
On the other hand, bar and coin investment strengthened 5% year-on-year to 302t,
although there were notable shifts in key markets. US bar and coin demand hit 32t in Q1,
the highest quarterly level since 2010, and was driven primarily by recession fears and a
flight-to-safety amid the banking turmoil. This increase helped offset weakness in Europe
and particularly Germany where there was a 73% drop in demand. The decrease in German
demand was primarily the result of real interest rates turning positive and the rise in the
euro gold price which encouraged profit-taking.
On the supply side, there was a slight increase in Q1 total gold supply to 1,174t, with
marginal 2% growth in mine production and a 5% uptick in recycling driven by the higher
gold price.

Louise Street, Senior Markets Analyst at the World Gold Council, commented, “The
mixed picture for Q1 highlights how gold’s diverse sources of demand underpin its role and
performance as a global asset. 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. Against the backdrop of turmoil in the banking sector, ongoing geopolitical tensions and a challenging economic environment, gold’s role as a safe haven asset has come to the fore. In this landscape, it is likely that investment demand will grow this year, especially with waning headwinds from the strong US dollar and interest rate hikes.
Positive demand for gold ETFs has continued in Q2 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. As some
economies teeter on the brink of recession, gold’s role as a long-term, strategic asset could
take centre-stage as it has a history of delivering positive returns in the last five out of
seven recessions.”

Retail Jeweller World News