Gold exchange traded fund (ETF) investors liquidated 175 t in the first quarter of this year, representing the largest level of net quarterly outflows since the fourth quarter of 2013, says financial markets, data and infrastructure provider Refinitiv Metals Research.

It was also the second consecutive quarter of net outflows – with net selling of 75 t having been reported for the fourth quarter of 2020.

This compares to net inflows of over 300 t in the first quarter of 2020.

Refinitiv says the large outflow was largely a reflection of a shift in investor sentiment towards gold since the beginning of the year, with gold being pressured by a firm dollar, rising US Treasury yields and growing enthusiasm around economic recovery amid the ongoing rollout of vaccination programmes.
Following a very good performance in 2020, when gold appreciated by 27% and reached an all-time high in early August, the beginning of this year has not been as good as may have been expected, Refinitiv says.

“With the growing optimism around economic recovery in light of the ongoing rollout of vaccination programmes and stimulus measures introduced by central banks and governments, gold came under significant pressure, correcting by 13% during the first three months of the year, and trading at near nine-month lows at the end of March,” it notes.

Gold averaged $1 794/oz in the first quarter, down 4% from the previous three months, but still about 13% above the level seen over the same period of last year.

Gold demand from the jewellery sector, which was the worst hit segment by the pandemic last year, rebounded by 45% in the first quarter, to 459 t, with the recovery largely driven by strong gains in key Asian markets.

Despite strong year-on-year growth, demand remained relatively subdued on a historic basis, and down by 10% from the level achieved in the first quarter of 2019.

Meanwhile, demand for gold used in industrial applications was broadly flat during the first quarter, following a double-digit decline in 2020, as gains in electronics sector offtake were offset by the ongoing weakness in some other areas.

In terms of retail investment, which is the sum of bars and all coins, demand is estimated to have rebounded by 40% year-on-year, to 350 t in the first quarter.

Physical bar investment soared by 58%, to an estimated 250 t, led by a resurgence of demand in Asia as the economies continued to re-emerge from lockdown, further helped by lower prices in local terms, pushing the offtake closer to pre-pandemic levels, Refinitiv acclaims.

Moreover, it says gold bar demand remained strong in Europe, driven by ongoing concerns over economic uncertainty, currency stability and inflationary pressures amid massive stimulus measures adopted by central banks and national governments to pull economies out of the deep economic recession caused by the pandemic.

Coin demand rose by 9% during the first quarter, led by higher official coin fabrication and a rebound in Indian demand for medals and imitation coins.

Official sector net gold purchases were estimated at 81 t in the first quarter of the year, down by 36% year-on-year.

The first three months witnessed a steep rise in gross sales, led by Turkey and the Philippines, while gross purchases declined by 11%, although a year-on-year drop was far less pronounced than in the previous three quarters, Refinitiv notes.

Gold purchases were led by Hungary, which added 63 t to its official gold reserves in March, for the first time since October 2018, with further additions from India, Uzbekistan and Kazakhstan.

With regard to supply, the impact of Covid-19 on the mining industry seems to have started dissipating, as the peak of disrupted mines is past, Refinitiv says.

It is estimated that over 140 mines had been affected by the pandemic since March 2020, in the form of either a complete suspension of their operations or a partial setback. The company estimates that total gold production lost as a result of the pandemic surpassed 150 t.

While some mines in the important producing countries such as Mexico, Peru and South Africa remain affected, global output has started to recover during the last few months.

Preliminary results indicate that mine production during the first quarter of this year had increased by about 1% year-on-year, to 854 t, with the largest gains being realized in Canada and Indonesia, which were partially offset by losses in Mali and the Democratic Republic of Congo.

Meanwhile, preliminary results indicate that gold hedging represented a net 12.7 t during the first quarter, as most Australian companies (which account for more than a half of the total hedge book) renewed or even increased their contracts, locking favourable gold prices in Australian dollars.

Scrap supply is estimated to have fallen by 12% in the period, to 280 t, driven by reduced flows in Asia amid lower gold prices in many local currencies, while a resurgence of new Covid-19 cases and the introduction of lockdown measures weighed on scrap flows in Europe.

“Looking ahead, the broader macroeconomic backdrop remains favourable for gold. We believe that gold will continue to benefit from ongoing concerns around economic uncertainty, increased debt levels, negative interest rates and currency stability amid unprecedented levels of stimulus measures launched by central banks and governments around the globe.

“Moreover, the ongoing battle against the virus and the risks associated with the development of new variants, vaccines production and distribution will continue to support gold investment demand this year.

“Having said that, gold could remain vulnerable to further liquidation and sideways trading in the short term, particularly should we see faster-than-expected economic recovery, a further rise in US treasury yields and a stronger dollar. We forecast gold to average $1 764/oz in 2021,” says Refinitiv lead analyst Saida Litosh.