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India, China set to drive gold demand rebound after 11-year low in 2020

Dubai - Demand for gold slumped due to weak sales, Covid-19 related disruptions.

Global gold demand is set to recover this year after hitting an 11-year low in 2020 with India and China, two major markets of the yellow metal, driving the upswing on the back of a significant economic rebound in 2021, according to the World Gold Council.

Demand for gold slumped to 3,759.6 tonnes in 2020, mainly due to a weak October-December quarter and the Covid-19 related disruptions across the world driving a muted consumer sentiment throughout the year, the World Gold Council said in a report.

The decline last year was led by the key Indian and Chinese markets, which experienced historically weak sales. Now economic recovery in both these countries is supporting a rebound in demand.

Both China and India are on track to record the world’s highest growth rate in 2021. According to the latest projection by the International Monetary Fund, India will be the fastest-growing global major economy with an 11.5 per cent growth while China will be growing at 8.1 per cent in 2021.

The overall consumer demand during 2019 was at 4,386.4 tonnes, while in 2009 the overall demand was at 3,385.8 tonnes, according to the WGC's Gold Demand Trends report. Increased uncertainty and policy response to the pandemic supported annual investment demand in 2020, which increased 40 per cent to a new high of 1,773.2 tonnes compared to 1,269.2 tonnes in 2019, WGC report said.

In the fourth quarter of 2020, global gold demand dropped by 28 per cent year-on-year (YoY) to 783.4 tonnes in the compared to 1,082.9 tonnes during the October-December period of 2019, the report stated.

“The impact of the Covid-19 pandemic was felt across the gold market throughout 2020, and the fourth quarter was no different. Consumers around the world remained at the mercy of lockdowns, economic weakness and high gold prices, resulting in a new annual low in jewellery demand," Louise Street, WGC senior markets analyst, Research, said.

Bar and coin demand also saw a strong recovery in the second half of the year, showing that retail investor sentiment remained relatively stable in these volatile markets. “Overall, we believe the effects of the pandemic are likely to reverberate into the first quarter of 2021, and possibly beyond,” Street added.

The report also revealed that global gold jewellery demand fell by 34 per cent to 1,411.6 tonnes in 2020, from 2,122.7 tonnes in 2019.

Gold jewellery demand in the fourth quarter of 2020 dipped by 13 per cent to 515.9 tonnes compared to 590.1 tonnes, resulting in a full-year total of 1,411.6 tonnes, which was 34 per cent lower than in 2019 at 2,122.7 tonnes.

While jewellery demand improved steadily from the severely depleted second quarter, the coronavirus pandemic continued to impact consumer behaviour, WGC noted.

In the second half of 2020, most of the growth came in the form of gold-backed exchange-traded funds (gold ETFs) and was aided by bar and coin demand growth.

Demand for ETFs grew by 120 per cent in 2020 at 877.1 tonnes compared to 398.3 tonnes in 2019.

In addition, the report revealed that over-the-counter (OTC) activity, which is not directly captured in the data set, was also robust throughout the year.

However, in the fourth quarter there was a notable decline in investment demand for gold ETFs with outflows totalling 130 tonnes sequentially.

The total annual gold availability also took a hit in 2020 and was 4.0 per cent lower at 4,633.1 tonnes compared to 4,819.9 tonnes, the largest annual fall since 2013.

The drop in supply can be largely explained by coronavirus-related disruption to mine production, offset by a marginal 1 per cent increase in recycling to 1,297.4 tonnes for 2020 compared to 1,281.9 tonnes in 2019. Gold buying by central banks slowed by 59 per cent in 2020, at 273 tonnes compared to 668.5 tonnes in 2019, it noted.

issacjohn@khaleejtimes.com