While gold investment demand fell in the first quarter, this was mitigated by the strength of retail purchases of bars and coins, as well as gold jewelry.

Gold-backed exchange-traded funds saw 177.9 tons of outflows in the first quarter of 2021 – a 23-percent drop year-on-year – amid rising Treasury yields, according to the World Gold Council's «Gold Demand Trends» Q1 2021 report, published on Thursday.

At the same time, these outflows were mitigated by a 339.5-ton increase in retail gold purchases (36 percent y-o-y), influenced by price-driven «bargain-hunting» and widespread concern over growing inflationary pressures, the report said. Overall overall global gold demand from January to March was on par with the preceding quarter at 815.7 tons.

Green Shoots

«We are beginning to see the green shoots of recovery, so there's a natural pullback,» the World Gold Council's Andrew Naylor told finews.asia about the slowing pace of institutional investment in gold. However, he noted the ETF market is still buoyant, and that Asian ETFs have actually seen net inflows because of the stronger retail market participation in the region.

The Singapore-based head of central banks and public policy noted that there is still a strategic case for investing in gold. «There is still a lot of uncertainty, and there is a likelihood of an inflationary environment with the extension of government balance sheets,» Naylor said. 

As for retail consumers, a more positive economic environment, coupled with a lower gold price, is prompting renewed interest, Naylor said. Bar and coin demand had its best quarter since 2016, growing 36 percent year on year, while jewelry demand enjoyed a post-Covid rebound of 52 percent.

Gold vs. Crypto

Naylor said that despite the growing interest in cryptocurrencies and digital assets among investors, he does not see them as competing as they play different roles in portfolios.

«Cryptocurrencies do have a role in the asset allocation mix at the moment, but they're not gold. They're a risky asset, and you would probably want to balance that with a risk mitigator such as gold,» Naylor said.

Naylor reiterated the case for investing in gold, whether in a high or low interest rate environment: its role as a risk diversifier, unique demand profile, and how it helps risk-adjusted returns of a portfolio.