While gold demand reached an 11-year low in 2020, demand is already picking up in China and India, the precious metal's two largest consumers globally.
Economic recovery in China, which recorded 6.5 percent GDP growth in the fourth quarter of 2020, is likely to support consumer demand, and this will also be the case with other countries as they move out of lockdown, Andrew Naylor, the World Gold Council's Singapore-based director of Central Banks and Public Policy, told finews.asia.
Improved market infrastructure in India will also facilitate institutional investment and lower import taxes, which was announced in the country's Budget 2021 last week, will give domestic demand a boost, Naylor said.
At the same time, given the prolonged period of low interest rates and ballooning budget deficits, investment demand is likely to persist and there will be sustained interest in gold as a way to hedge against risk in 2021, he said.
Demand Trends
«In periods of uncertainty, you see investment demand pick up, with institutional investors looking for ways to hedge risk,» Naylor said, discussing the WGC's «Gold Demand Trends Full Year and Q4 2020,» published last week.
Naylor highlighted the consistent inflows into global gold ETFs until October, before a recovery in sentiment and a drop in the gold price led to 130 tons of outflows in Q4. Overall, global gold ETFs reached a record 877.1 tons ($47.9 billion) in 2020.
However, consumers reacted differently amid the Covid-19 pandemic, purchasing less of the yellow metal as 2020 marked a record low for gold jewellery demand and the lowest annual total for gold demand since 2009. A weak fourth quarter culminated in a 14 percent decline in annual demand to 3,759.6 tons.
Relationship With Crypto
Naylor acknowledged the rise in the popularity of crypto in investor portfolios and the innovation they have driven in the financial industry, but noted that the two assets are fundamentally different in nature.
In particular, gold has more diverse demand sources and is highly liquid, while being less volatile, Naylor said. In fact, portfolios with cryptos may benefit from higher risk-adjusted returns with more allocations to gold, he added.
«Gold is a unique portfolio diversifier and a physical asset with a diversity of demand – jewellery, central banks, technology – that cannot be replicated anywhere else, and utility that cannot be seen in other asset classes,» Naylor said.
