Irony as gold gains, jewellers vanish

Spot gold has risen 17% in 2020, closing second quarter with its largest rally

Western investors piling into gold in the pandemic are more than making up for a collapse in demand for physical metal from traditional retail buyers in China and India, helping push prices to an eight-year high.

Inflows into exchangetraded funds this year — mostly in North America and Europe — are already inches away from the annual record set in 2009, according to data compiled by Bloomberg. Meanwhile, demand in China and India, the world’s two biggest buyers of gold bars, coins and jewellery, plunged after the coronavirus stalled imports and emptied malls. Sales have been slow to return as rising prices deter buyers.

The shift underscores the global push-and-pull for gold between Western investors looking for a safe haven and traditional demand centres for physical gold in Asia. It also raises crucial questions for the market this year, as gold prices risk losing support if ETF inflows slow down, or could gain even more momentum if Chinese and Indian demand bounces back.

“We expect the US and European investors to remain interested in gold regardless of Asian demand,” said Darwei Kung, head of commodities and portfolio manager at DWS Investment Management Americas Inc. “If the buying pattern were to go up as well for China and India at the same time as what you see in the ETF market, then the price would have come up even further.”

A chilling effect

The higher prices have had a chilling effect on Asian shoppers even as economies reopen. Demand for jewellery in China and India tumbled as lockdowns, job losses and weak economic growth curbed discretionary spending. Precious metals consultancy Metals Focus Ltd. forecasts a 23 per cent decline for Chinese gold jewellery consumption in 2020, while Indian demand is expected to drop 36 per cent.