Gold 2020: Price highs led to positive and negative records

News Arnulf Hinkel, financial journalist – 28.01.2021

The gold rally that had begun in the fourth quarter of 2018 gained considerable momentum with the emergence of Covid-19, breaking the magical 2,000 US$ per ounce mark in August 2020. Despite slumps towards the end of the year, the spot price for gold in US dollars gained 25 per cent year-on-year, while gold in euros rose by 13 per cent in 2020. Still, gold demand was at its lowest level in 11 years. How does this fit together?

Record inflows into gold ETFs/ETCs and a new high in gold holdings

Inflows into gold-backed ETFs and ETCs increased by a full 120 per cent: 877 tonnes of gold in just one year was unprecedented, just like the record high in gold holdings of 3751.5 tonnes at the end of 2020. Thus, total investments in gold increased year-on-year by 40 per cent to a new annual record of 1773.2 tonnes. By contrast, investments in physical gold grew rather modestly, by only 6 per cent.

Covid-19 slowed down private and industrial gold consumption

The Coronavirus crisis led to a sharp decline in private consumption of many products, including gold jewellery, which dropped to its lowest level of demand ever after accounting for almost half of total gold demand in 2019. Gold jewellery purchases declined by 34 per cent globally, and by as much as 42 per cent in the key gold region of India. Industrial demand for gold also gave way under the pressure of the pandemic, but only by 7 per cent year-on-year.

Central banks expanded their gold reserves in 2020 for the eleventh consecutive year, but only by 272.9 tonnes, a decline of 59 percent year-on-year.

The crisis year 2020 and the surging gold price thus led to record investments in the safe and, moreover, exceedingly lucrative haven of gold over the course of the year. On the other hand, the extreme situation also inhibited gold purchases by many people who feared or already felt the pandemic’s effects on their financial situation. However, the World Gold Council predicts demand for gold jewellery is likely to pick up again this year.

 

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Source of all data is the World Gold Council publication “Gold Demand Trends Full Year 2020”, 28 January 2021

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