Gold market changing, rearranging

By Ellsworth Dickson

While many people are wrapped up in the different and sometimes difficult changes in their lives due to the consequences of the COVID-19 pandemic, the virus has also caused changes in the gold market – some to be expected and some surprising.

According to a new report by the World Gold Council, demand for gold in Q3 2020 – 2,972 tonnes year to date – demand is 10% below the same period in 2019. Q3 demand was 892.3 tonnes – the lowest quarterly total since Q3 2009.

However, these figures don’t really tell the story.

The WGC report notes that while jewellery demand improved from the dark days of the record Q2 low, the continued social restrictions, economic slowdown and a strong gold price dissuaded many potential buyers of jewellery; in other words, the perfect storm for not splurging on beautiful baubles. Gold demand for jewellery at 333 tonnes was 29% below a slow Q3 2019.

With manufacturing and related sectors hit by the COVID-19 pandemic, it could be surmised that the effect would be a weak demand for gold used in technology. In Q3 2020, gold for technology was down 6% year-over-year at 76.7 tonnes. However, the WGC report remarked that the sector saw an improvement during Q3 as some key markets emerged from lockdown.

On the other hand, global holdings of gold ETFs reached a new record of 3,880 tonnes. The WGC commented that while the pace slowed a little from H1, sustained inflows during Q3 demonstrated that investors love ETFs.

As well, bar and coin investment jumped to 222.1 tonnes in Q3 – that’s up a startling 49% year-over-year.  The largest volume increases were in Western markets, China and Turkey.

All this was taking place as the price of gold rose to a record high of US $2,067 an ounce, before backing off.

In my opinion, this shows an interesting investing phenomenon that I have seen before. If potential gold buyers believe that gold prices are going higher, the higher the price – the more they want their share. I watched this take place for years across the street from our former office at the bullion and coin store. Sure enough, when the gold price was quiet, the store did a steady business. However, when the gold price spiked, customers were lined up outside the door.

So why are we seeing all this gold ETF, coin and bar buying?

Is it the safe-haven status of gold manifesting or perhaps investors making sound investment decisions? Maybe it’s just FOMO – fear of missing out.