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Physical gold demand falls in 1Q; investment may fuel rally to $1,800/oz - Refinitiv

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(Kitco News) - Physical demand for gold – consisting of jewelry, industrial uses, central-bank purchases and retail buying of bars and coins – fell by 26% year-on-year to 753 metric tons in the first quarter, the lowest level since 2009, as high prices led the drop in consumption, said Refinitiv Thursday.

Nevertheless, demand from professional investors for a safe haven picked up during the quarter, and the average gold price rose, with exchange-traded-product holdings jumping by 687% year-on-year to 300 tons, said GFMS team at Refinitiv.

Analysts said they see more gains for the yellow metal, saying could could challenge $1,800 an ounce this year.

Refinitiv described gold prices as volatile in the first quarter, posting gains during the first two months before selling off in March when the metal was pulled down by a sell-off across global stock markets. Gold then bounced back and ended up averaging $1,582 an ounce for the quarter, which was up by 7% from the previous three months and up 21% year-on-year.

“Looking ahead, gold may remain vulnerable to further losses in the short term, particularly should the COVID-19 crisis continue to deteriorate in the West and if we see another meltdown in equity markets, which would lead to yet another bout of liquidation across all asset classes, including gold,” said Cameron Alexander, manager of precious-metals research at Refinitiv.

“Having said that, with heightened uncertainty and expectations of the global economic recession, unprecedented levels of stimulus from central banks around the world and interest rates remaining at historically low levels and in negative territories, we believe that gold will rebound to even higher levels. We forecast gold to average $1,637/oz in 2020, with a possibility to test and move beyond $1,800/oz later in the year.”

The firm said jewelry-fabrication volume, which typically accounts for around 55% of total physical demand, slumped 40% year-on-year during the January-March period to 309 tons. The biggest losses were in Asia, with a 43% year-on-year decline.

China’s jewelry-fabrication demand tumbled 62% due to the COVID-19 pandemic, which shut down the economy, Refinitiv said. India’s fabrication demand fell 34% from the same period a year ago, hurt by record high gold prices in the country’s currency even before a government-mandated lockdown in late March, the firm said.

First-quarter demand for gold used in industrial applications fell 19% to 75 tons, analysts said. Official sector net purchases dropped by 11% year-on-year to 129 tons.

Meanwhile, the bulk of the first-quarter 300-ton build in ETP holdings took place in March, Refinitiv said. This was aided by a price correction and pick-up in safe-haven demand due to the spread of the COVID-19 pandemic and fears of a global economic recession. Total ETP holdings rose to a fresh high of over 3,000 tons by the end of the quarter, the firm added.

However, coin and bar retail investment fell by 11% year-on-year in the first quarter to 240 tons, led by a 21% drop in physical bar investment to 151 tons, Refinitiv said. This demand in Asia fell by 67% from the same period in the prior year.

Demand in China and India for physical bars fell by 53% and 49%, respectively, hurt by an economic slowdown, high gold prices and a lockdown in China, which brought business activity and consumption to a standstill, Refinitiv said. The picture was the opposite in Western nations, however, as a surge in safe-haven demand meant bar demand more than doubled in Europe and was up 21% in North America.

Refinitiv described a mixed picture for supply. Mine production increased by 3% year-on-year to an estimated 842 tons, analysts said, but scrap flows slipped by 2% to 299 tons. The latter was impacted by COVID-19 restrictions, with China’s shutdowns leading to a drop in scrap volume of more than 40%, Refinitiv said. However, with the gold price in Indian rupee rising to fresh highs, scrap supply there soared by 29%, offsetting some of the decline in Chinese flows.

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