FEATURE:
COVID-19 and its Impact on the Global Gold Market
Investors are drawn to gold for several reasons. As a liquid, physical asset with no credit risk, gold can act as a safe haven. This is why we have seen significant inflows into gold – particularly gold-backed ETFs and similar products – as a consequence of the economic fall-out of COVID-19. It is also a good portfolio diversification tool, as it exhibits little or no correlation to other assets. Our analysis also shows it outperforms many other assets, particularly in the long term.
Gold and COVID-19
At the end of April, we published our first quarter Gold Demand Trends. Gold demand inched up to 1,083.8 tonnes in Q1, supported by investment.
Unsurprisingly, the global COVID-19 pandemic had an impact. It has fuelled safe-haven investment demand for gold, offsetting marked weakness in consumer-focused sectors of the market. Investment demand – driven by economic uncertainty – has resulted in record inflows into gold backed ETFs and similar products. As the scale of the pandemic and its potential economic impact started to emerge, investors sought safe-haven assets. Gold-backed ETFs and similar products attracted huge inflows (+298t), which pushed global holdings in these products to a new record high of 3,185t.
It is fair to say that the pandemic has had an unprecedented impact. It has disrupted global supply chains, paused large sections of the economy, put huge pressures on governments, and knocked consumer confidence. Higher risk and uncertainty combined with lower opportunity cost will likely be supportive of gold investment demand in 2020. This could continue to offset the negative effect of lower consumer demand on gold performance as economic activity contracts.
It is clear the global economic outlook is highly uncertain, and as governments grapple with deficits and the need to kick-start the global economy, gold will play an ever-increasing role in investment portfolios.
Drivers of gold behaviour
Gold's behaviour can be explained by four broad sets of drivers:
1. Economic expansion: periods of
growth are very supportive of
jewellery, technology and long-term
savings
2. Risk and uncertainty: market
downturns often boost investment
demand for gold as a safe haven
3. Opportunity cost: levels of interest
rates and strength of currencies
influence investor attitudes towards
gold
4. Momentum: capital flows,
positioning and price trends can
ignite or dampen gold's performance
COVID-19 and its Impact on the Global Gold Market
By Andrew Naylor, Executive Director, Head of ASEAN and Public Policy,
World Gold Council
Gold is mined on every continent in the world except Antarctica, and its financial benefits are acknowledged by institutional investors, the official sector, and consumers globally. Although the gold market is global, London has had a central role (particularly in trading and custody) for centuries.