In a tumultuous year for the gold market, investment was one of the notable positives. Total annual gold investment of 1,773.2t was the highest in our data series and 40% above the 2019 total, with Western investors across the spectrum driving much of the growth.
Record inflows into gold ETFs clearly showed the strength of investor demand for gold worldwide at a time of heightened risk and uncertainty, ultra-low interest rates, fiscal expansion and economic slowdown. The scale of investment in these products contributed to the momentum behind gold’s price rise, which itself attracted further investment inflows.
Retail investment in gold bars and coins was less clear-cut, with some markets showing a distinct preference for profit-taking/liquidation – particularly in the first half of the year – while other markets consistently added to gold holdings. The divide was largely along East/West lines, with many Asian markets seeing a notable increase in selling back of gold holdings as the pandemic took hold. Western investors, meanwhile, focused more on adding to their safe-haven holdings of gold.
Annual inflows into gold ETFs reached a record 877.1t (US$47.9bn) in 2020, despite outflows of 130t during Q4. Global holdings closed the year at 3,751.5t (US$228.2bn).1
Sustained strong inflows into gold ETFs over the first nine months of 2020 were fuelled largely by the eruption and spread of the coronavirus pandemic and decisive fiscal and monetary policy responses from global authorities. A record 1,007t was added to global holdings over this period.
By contrast, Q4 saw net outflows of 130t as sentiment shifted and the gold price underwent a sharp corrective pullback. The quarter started positively: October was the 11th consecutive month of growth (albeit at a slower pace, with inflows of 18.8t) and global holdings reached a record of more than 3,900t. But November witnessed a sharp reversal, with outflows of 108.7t, followed by more moderate outflows of 40.1t in December. The conclusion of the widely anticipated US election, resulting in victory for Joe Biden, removed a key element of uncertainty from the market and encouraged some of the shift out of gold ETFs. And the announcement of successful COVID-19 vaccines buoyed wider market sentiment, boosting risk appetite and prompting a shift into riskier assets like stocks, pushing equity markets in some regions to all-time highs.
As investors reduced hedges and increased risk-asset exposure amid this more positive sentiment, gold ETFs across all regions saw outflows in Q4. Reflecting their size and liquidity, funds listed in North America and Europe accounted for the bulk of the outflows, with holdings declining by 86.1t and 34.7t respectively during Q4. Asian-listed funds declined by 4.7t and outflows from funds listed in Other Regions totalled 4.4t.
The growth in ETF holdings throughout the year was mirrored in a notable increase in interest from Chinese and Indian investors. Inflows into Indian gold ETFs almost doubled, from 14.8t at the end of 2019 to 28.3t at the end of 2020. The rising gold price, increased stock market volatility and the challenging economic environment created by COVID-19 fuelled the growth.
China’s ETF market, meanwhile, also expanded in terms of the range of funds available. Amid growing domestic interest in gold ETFs, 2020 saw the launch of seven new Chinese gold ETFs. Three new funds launched in Q2, all at least 90% backed by the Shanghai Gold Exchange’s Au9999 physical gold contracts, and in H2, four further funds were listed with a minimum 90% backing by Shanghai Gold Benchmark contracts.
Looking at the regional breakdown of global holdings, North American-listed funds increased their share of the total in 2020, accounting for 53% by year-end (2,003.1t) up from 50% at end-2019. European-listed funds, meanwhile, saw their share decline from 46% to 42%. Funds listed in Asia and in other regions remain at 3% and 2% of the total, respectively.
Evidence suggests that gold demand was also supported by robust OTC activity throughout the year, which – combined with strong Gold ETF inflows and Western retail demand – explains in good part the strong gold price performance at a time of notable weakness in consumer demand – especially in jewellery. Strong OTC demand was noted in numerous conversations with gold market intermediaries last year. Demand through OTC is not directly captured in our series due to a lack of available data, but strong activity in 2020 can be inferred by looking at the supply/demand imbalance shown in the ‘Gold Balance’ table in our Gold Demand Statistics, as well as at net long positioning in the US futures market reported by the Commodity Futures Trading Commission (CFTC) Commitment of Traders report. While futures contracts do not always result in physical demand, analysis suggests that investor behaviour in futures is a good indicator of OTC activity.
As we move into 2021, we expect that many of the same underlying drivers of gold demand should remain in place – in particular, ultra-low rates, fiscal stimulus, lofty stock valuations and the ongoing impact of COVID-19.
Bar and coin
Demand for gold bars and coins was the only area of the gold market to generate meaningful y-o-y growth in Q4: retail investment grew by 10% to 268.7t. The annual y-o-y comparison was modest, however; demand of 896.1t was only 3% higher y-o-y relative to an already subdued 2019. But a review of the regional data series for gold bars and coins reveals an interesting divergence in performance.
Official gold coin demand was by far the strongest performing element of retail investment throughout 2020: it reached a record high of 297.6t. That is 10% above the previous high of 271t set in 2013 – a time when a precipitous drop in the gold price elicited an unprecedented response from retail investors who took advantage of lower prices to add to their long-term holdings. The growth in retail investment in official coins during 2020 can largely be attributed to consistent strength in investment interest in Western markets.
Growth in annual coin demand of 33% was in sharp contrast to the 9% drop in annual bar demand to 529.5t. This fall was concentrated solely in H1 and was principally the result of liquidation by investors in Asian markets, reeling from the severe impacts of the COVID-19 outbreak.
Gold bar and coin demand in China witnessed a strong recovery in the second half of the year, culminating in a 33% y-o-y increase in Q4 demand to 63.6t. But this was not enough to match the weakness seen in H1 2020, when market lockdowns put the brakes on investment; at 199.1t, annual local retail investment remained 6% below its 2019 level (211.1t).
China’s bar and coin demand extended its recovery in the last quarter of the year. As the domestic economy continued to improve, consumer disposable income – a key driver for China’s bar and coin demand – also extended its recovery from previous quarters. In addition, coin sales benefited from the traditional Q4 seasonal boost, as consumers tend to hoard Chinese Zodiac gold coins ahead of the Chinese New Year Festival for good luck or gifting.
In Q1, the COVID-19 outbreak and related social and economic restrictions had led to unprecedented weakness in China’s bar and coin demand. But as the spread of the pandemic was swiftly contained, China’s equity market and real yields subsequently soared, diverting many retail investors’ attention away from gold. According to China Asset Management Association, funds under management in China grew by nearly RMB4trn, a 30% rise compared to 2019. Meanwhile, many retail gold investors reportedly adopted a ‘sit and wait’ attitude as the local gold price consolidated after surging to the record high in August.
Despite a solid recovery in Indian bar and coin demand during H2 2020, annual retail investment of 130.4t was the lowest yearly total in our data series. The impact of the market lockdown during H1 overwhelmingly influenced the annual total. The 8% y-o-y increase in Q4, to 48.9t, came as retail investment was supported by festival demand and a dip in the local gold price from record highs.
Strong Indian retail investment demand was noted during November and December. While Dhanteras boosted demand, sales were slightly lower y-o-y as consumers preferred to make wedding jewellery purchases at this time. Furthermore, some retailers decided to sell gold coins on a pre-booked basis rather than on the spot, in order to avoid the traditional rush during Dhanteras.
The pullback in the gold price during November was seen as a buying opportunity, further buoying bar and coin investment. With expectations of higher gold prices in the long term, investors responded with conviction, adding to their holdings. Small bars (of 50gm denominations and below) were especially popular. Also, with the re-opening of the economy and of retail outlets, access to gold became much easier in Q4, supporting demand for bar and coins.
Digital gold platforms witnessed a notable uptick in sales during the festival; low entry points for digital gold investments (as low as Rs1) helped combat the affordability barrier created by higher gold prices. Leading digital gold platforms such as PhonePe saw a six-fold increase y-o-y in gold sales volumes in the run-up month to Diwali in 2020 and Paytm reported 86% y-o-y jump in gold sales volumes during the Diwali week itself.
Bar and coin demand in Turkey more than doubled in 2020 to a record high of 121t. Strong growth was seen throughout the year, with Q4 registering a 42% y-o-y increase to 28.4t. While sales in October were tepid, November saw a healthy recovery as the sharp drop in the lira gold price sparked bargain hunting. Demand slowed again in December as the government introduced a curfew to combat a resurgence of COVID-19 cases.
Retail investment across much of the Middle East saw modest growth in Q4, mainly because investors viewed the price drop as an opportunity to add to their holdings. For the full year, investment across the region fell by 6% to 57.2t. This was largely explained by weaker Iranian demand due to distress selling in H1 and by central bank measures to tighten liquidity by introducing caps on money transfers, thus squeezing coin demand.
The sharp y-o-y rise in US bar and coin demand in Q4 (+248%) was largely due to Q4 2019 having been an exceptionally weak quarter. Nonetheless, Q4 investment of 15.6t is 25% above the five-year quarterly average of 12.5t. Retail investment for the full year reached 66.4t, a more than threefold increase from 2019.
US investors did not respond with the expected vigour to the Q4 price correction, perhaps mirroring the reaction among institutional investors to the positive vaccination announcements and the decisive conclusion of the long-awaited US election, which resulted in a shift towards riskier assets. The opening weeks of 2021 have seen a renewed surge of interest in gold coins in particular, with the US Mint reporting sales of Eagle coins so far in January of 157,000 oz – the highest January total since 1999.2
Retail investment in Europe grew 67% in 2020 to 256.2t – reminiscent of the levels sparked by the Global Financial Crisis. Q4 demand was up 25% to 61.8t as the pullback in the euro gold price inspired bargain hunting across the region. And while further rounds of market lockdowns disrupted everyday life, the gold market was able to adapt far more quickly, allowing it to continue functioning relatively smoothly – for example, through online sales and ‘click and collect’ services.
But while growth was widespread across Europe, there was a clear outperformer: Germany re-established its position as a global heavyweight, leapfrogging India to become the second largest gold retail investment market for 2020 with record annual demand of 163.4t. Measured in euros that equates to annual investment of €8.1bn, surpassing the previous high from 2011 of €5.2bn. Negative interest rates in Germany, which increasingly trickled down to individuals’ bank accounts, raised the appeal of gold as an alternative means of wealth protection.
Thailand notched up a third consecutive quarter of net disinvestment of bars and coins, albeit at a markedly slower pace than in previous quarters: net sales totalled 7.3t in Q4. For the full year 2020 net disinvestment reached a remarkable 87.3t, thanks to the combination of the negative fall-out from the pandemic and the surge in gold prices to record highs. However, the price pullback in Q4 enticed some investors to replenish their vastly depleted holdings.
The gold price drop in Q4 explained the improvement in Q4 investment demand across several of the smaller Asian markets, including Japan, Indonesia and South Korea. However, full-year demand was weaker virtually across the board, with Indonesia being a notable exception where investment rose 18% to 16.8t as investors turned to the safety of gold amid the pandemic. In Japan, sales of gold bars and coins again outweighed purchases, although to a far lesser extent than in 2019.