Gold market diverges with demand rising in the West and falling in the East

By April 30, 2020, 12:00 AM EDT

  • Western investors have sought a haven amid virus crisis
  • Higher prices have deterred jewelry purchases in Asia: council
Precious Metal Storage as Gold Gets Federal Reserve Rate Cut Boost
Photographer: Michaela Handrek-Rehle/Bloomberg

It’s been a tale of two diverging markets in gold this year, with demand rising in the West and falling in the East.

The hunt for a haven helped boost U.S. and European investment in the first quarter to levels last seen after the Brexit vote and Donald Trump’s election, according to the World Gold Council. At the same time, jewelry, bar and coin consumption in China and India dropped to multi-year lows as higher prices and coronavirus-led lockdowns deterred buyers.

“It was an interesting diversion between East and West,” said Louise Street, a market intelligence manager at the council.

Gold is trading near a seven-year high and exchange-traded fund holdings are at a record as investors seek a store of wealth with the pandemic hurting economies. Prices have also hit all-time highs in currencies in nations like India, and many retail investors there sold bullion in the hope of buying again at a cheaper level, although that’s harder during lockdowns, Street said.

In the West, investors proved to be more cautious in selling and momentum buying was stronger, she said.

The Big Split

Disruption to gold’s supply chain and panic buying in some regions drove prices in key global hubs apart recently, with bullion in China trading at a steep discount to prices in London and New York. While it’s difficult to forecast demand later this year due to the virus uncertainty, gold’s haven appeal is “very much prominent,” Street said.

Institutional investors in Asia are also evidence of that, she said. While gold ETFs in North America and Europe dominated purchases, funds in India and China also saw large increases in buying last quarter, she said.

In Demand

“Gold demand will continue to feel the effects of Covid-19 for the rest of 2020,” Street said. “In particular, the divergence between investment in gold-backed ETFs and consumers via jewelery will likely continue until there is greater economic and market certainty.”

Other key highlights from the council’s report:

  • Total global gold demand rose about 1% to 1,083.8 tons in the first quarter as investment offset declines in demand from the jewelry and technology sectors.
  • Gold supply fell 4% as lockdowns cut recycling and mine output hit a five-year low.

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