Central Banks Stockpile Gold To Drive Up Global Demand

Lisa Smith, BA (Hons), CeFA

The demand for gold hit grew 7% year on year on the first quarter mainly driven by central banks stockpiling more of the precious metal.

The banks waded into the market to garner 145.5 tonnes of gold to meet the highest demand for six years, says the latest data from trade body for producers, the World Gold Council.

Despite the demand from central banks, the rest of the gold market failed to glitter.

  • Gold-backed Exchange Traded Funds (ETFs) returned 49% growth to 40.3 tonnes
  • Coin and bar investment weakened by 1% to 257.8 tonnes, mainly to a drop in demand for gold bars which was offset by buyers snapping up 12% more gold coins
  • Jewellery gained slightly, mostly due to increased demand in one of the world’s largest markets – India
  • Technology demand for gold dipped to a two-year low at 79.3 tonnes
  • Overall, the annual supply of gold was unchanged for 12 months ago – just 3 tonnes lower at 1,150 tonnes.

“Factors that drove central bank net purchases to a 50-year high in 2018 remained relevant at the start of 2019,” said the report.

Economic uncertainty

“Economic uncertainty caused by trade tensions, sluggish growth and a low/negative interest rate environment continued to weigh heavy on reserve managers’ minds. And geopolitics still cause consternation. In the face of these challenges, central banks continued to accumulate gold.”

The banks buying gold spanned the globe:

  • China bought 33 tonnes
  • Ecuador came back to the market after a five year absence to buy 10.6 tonnes
  • Turkey’s rolling strategy saw another 40 tonnes purchased
  • India bought 8.4 tonnes to see reserves increase for 13 months in a row to a total of 608 tonnes
  • Kazakhstan added 11.2 tonnes in a series of purchases that has lasted for 78 months
  • Qatar (9.4 tonnes) and Colombia (6 tonnes) were also notable purchasers.

Technology downturn

Central banks also sold 11.3 tonnes of gold – the trio leading the way were Uzbekistan, Mongolia and Tajikistan.

Elsewhere a global downturn in consumer electronics as Apple issued a profit warning saw gold used in technology drop 4% to 62.9 tonnes.

Gold is selling for US$1,269.60 an ounce, down from closing at $1,277.88 on May 1.

Download the full Q1 2019 Gold demand report

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