30 January, 2020

Growth in annual investment demand was fuelled by ETF inflows, while bar and coin demand was contrastingly weak

  • Gold’s price rise had a mixed impact on investment: bar and coin investors took profits, while momentum buying contributed to inflows into gold-backed ETFs
  • Low interest rates and geopolitical uncertainty pushed holdings of gold-backed ETFs to record highs of 2,905.9t during Q4
  • A 10-year low in bar and coin demand owed much to steep declines in China and India.
Tonnes 2018 2019   YoY
Investment 1,169.8 1,271.7 9%
Bar & coin 1,093.6 870.6 -20%
  India 162.4 145.8 -10%
  China, P.R.:Mainland 308.0 211.1 -31%
Gold-backed ETFs 76.2 401.1 426%

Price was a key feature of the gold market in 2019. The gold price rallied to a six-year high in US dollar terms and hit record levels in a range of other currencies – euro, Indian rupee, Turkish lira and South African rand among them. This price strength had clear implications for gold demand across all sectors. But investment demand was more intricately linked to the dynamics of the gold price, being a a major contributor to its rise. 

As is often the case during periods of high and rising prices, retail and professional investment behaviour diverged: bar and coin investors were more inclined to capitalise on the price rise by selling existing holdings or waiting for the price to find a steadier footing. n contrast, positioning in US futures – widely accepted as representing the sentiment of more tactical investors – turned sharply bullish in June as the Federal Reserve began to ease rates. Comex Net longs reached all-time highs equivalent to 1,134t in September. This bullish sentiment among professional investors contributed to the price rise, which in turn attracted further momentum-driven investment inflows, notably into ETFs. 


Gold holdings in physically-backed ETFs and similar products closed 2019 at 2885.5t thanks to annual inflows of 401.1t. In US dollar value terms, the combination of annual net inflows of US$19.2bn and an 18% rise in the gold price lifted AUM to US$141.1bn by the end of December.  

Monetary policy and geopolitics fuelled the bulk of annual inflows, while the price rise also drew in momentum-driven inflows. North American funds saw the largest net increase in 2019, adding 206t (US$10.1bn) as growing geopolitical tensions and the first Fed rate cuts in a decade fuelled market uncertainty and reduced the opportunity cost of investing in gold. European funds added 188t (US$8.8bn). Half of this growth was directed into UK-based funds, which added 91t (US$4.1bn) on the back of ongoing Brexit concerns. Asian funds finished the year relatively flat, losing 0.1t, while funds in other regions added 7.6t, with most of the growth coming from Australian-listed funds as the gold priced soared in local currency terms.

After exceptional Q3 inflows of 256t, momentum slowed in Q4. Inflows in October and December were punctuated by outflows in November: the net result was a 26.8t increase in global holdings during the quarter.  Global holdings reached record highs of 2,905.9t in mid-October and although these levels were not sustained, they held up near historical highs for the remainder of the year.

Ultra-low interest rates and persistent global geopolitical uncertainty have been the twin engines of long-term growth in European-listed funds. Q4 growth was concentrated in European-listed funds, which added 34.1t during the quarter (+2%). Q4 saw a broad continuation of the supportive themes that had encouraged positive investor sentiment in previous quarters, namely: high gold prices, the low/negative interest rate environment, and ongoing geo-political issues. And increasingly during the fourth quarter, investors became anxious over whether the long-term bull trend in the US stock market may run out of steam. 

Since dipping below 1,600t at the end of 2015, global gold-backed ETF holdings have nearly doubled – growing 81% to just shy of 2,900t at year-end. And the geographical allocation of these holdings has shifted over this time. Four years ago, US-listed funds accounted for almost two-thirds of global holdings (922.8t) and European-listed funds for just over one-third (583.6t). This regional split is now closer to 50:50 after holdings of European-listed funds more than doubled: by the end of 2019, they held 1,322.1t. 


Global gold-backed ETF holdings hit an all-time high in Q4 2019

Global gold-backed ETF holdings hit an all-time high in Q4 2019

Sources: Bloomberg, Company Filings, ICE Benchmark Administration, World Gold Council; Disclaimer


Holdings of Chinese-listed gold ETFs saw a 4.6t outflow in Q4 as the bullish Q3 momentum in the gold price cooled. But total holdings of 44.9t were largely unchanged at the end of 2019 when compared with end-2018: the 10t outflow from H1 was cancelled out by an equal inflow in H2, driven by risk-hedging, price momentum and innovations.

AUM in Chinese gold-backed ETFs reached an all-time high in September 2019. Impacted by uncertainties from the US-China trade dispute, USD/CNY breached CNY7 in August for the first time in 11 years. Coupled with the bullish gold price momentum during the third quarter, this pushed holdings in domestic gold ETFs to 17bn yuan (equal to US$2.2bn) – the highest in history. 

China’s gold-backed ETF market is expanding.  The China Securities Regulatory Commission (CSRC) approved three new gold-backed exchange-traded funds late October 2019, raising the number of Chinese gold-backed ETFs to seven. These new ETFs, also fully backed by physical gold, will be managed by ICBC Credit Suisse Asset Management, China Asset Management and the First Seafront Fund Management, and listed within the next six months.1

Bar and coin

Full-year retail investment tumbled to a 10-year low. Annual demand for gold bars and coins dropped 20% y-o-y to 870.6t – the lowest level since 2009. Much of the decline came from a sharp decline in the two largest markets: China and India. The drop off in investment was mostly a reaction to the price rally and higher price volatility with added pressure coming from a slowdown in the domestic economies of both countries. But weakness was by no means confined to China and India: investment was notably weaker across much of Asia, the Middle East and the west. 


Global bar and coin demand fell to a ten-year low in 2019

Global bar and coin demand fell to a ten-year low in 2019

Sources: Metals Focus, Refinitiv GFMS, World Gold Council; Disclaimer


Another steep fall in Chinese bar and coin demand in Q4 compounded the annual decline. Q4 demand declined 35% y-o-y at 47.6t, bringing the annual total to 211.1t (-31% y-o-y). The rising gold price was the major factor denting bar and coin demand throughout the year; some investors took profits, while others deferred their investment decisions for a better entrance point as the gold price stayed high. 

China’s economic slowdown was another contributor to softness in bar and coin demand. And while China’s GDP growth slowed to the lowest level in 27 years, inflation was simultaneously surging, resulting in tighter budgets.

Indian Q4 retail investment fell for a second consecutive quarter, pulling annual demand down 10% to 146t. Gold bar and coin demand during 2019 as a whole was overshadowed by the runaway performance of the stock market. The BSE Sensex reached successive record highs throughout the year, capturing the attention of urban investors, who piled into the market. 

Equity market investment was supported by three key factors: 

  • the reduction in corporate tax rate from 30% to 22%, 
  • disinvestment of government shareholding in five public sector enterprises
  • and the possibility of a trade agreement between US and China. 

After reaching lofty highs of 41,681 towards the end of December, the Sensex fetched a total return of 6.8% in Q4 compared to 4.3% on gold and a meagre 1.9% on 10-year government bonds. 

High prices were a headwind for investment demand during Dhanteras. Although the festival boosted gold coin purchases, they ended around 10-15% lower y-o-y. Digital gold platforms however, 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.

India continues its efforts to regulate and standardise the gold industry. The BIS recently announced standards for delivery of a range of items, including gold. Under the good delivery standards, gold processed by domestic refineries that meet the requirements will now be eligible for delivery on the domestic Multi Commodity Exchange (MCX). The introduction of good delivery standards will help pave the way for bullion banking and gold spot exchange in India.

Almost without exception, investment demand fell across the Asian region: Japan and Thailand were significant contributors to the region’s weakness. Japan saw negative net investment in each quarter of 2019, generating annual net disinvestment of 19.7t – easily the worst year for gold investment since 2011. The increase in consumption tax imposed in October, coinciding with local gold prices near their record highs, discouraged fresh investment. 

Investment in Thailand recovered from Q3’s negative levels, but – at 11t – was nevertheless fairly anaemic in Q4. The relative strength of the Thai baht throughout much of 2019 meant investors were less focused on the need for gold as a safe-haven.

Turkey was an outlier: Q4 investment more than doubled y-o-y. Bar and coin demand grew 138% y-o-y to 20t, lifting the annual total to 53t (+40% y-o-y) The reasons for the Q4 jump in demand were twofold: many of the investors who had sold into the Q3 price rise bought back again as the gold price dipped back, expecting a resumption of the rally. And some investors chose to redeem their sovereign gold bond, taking delivery of gold coins as the bonds matured. 

Iran was the laggard in a Middle East region beset by weakness. Q4 bar and coin demand in Iran halved to 8t, although the drop was partly due to the comparison being made with a high Q4 2018. A sharp currency-led jump in the local gold price during the quarter staved off fresh investment, but safe haven buying is likely to have resumed in recent weeks as a response to the recent troubles. 

Losses were seen across the rest of the region as punishingly high gold prices added to the burden on investors already disheartened by challenging economic conditions.

US annual bar and coin demand sank to a fresh post-financial crisis low of 20t. Gold battled the twin elements of continued growth in equity markets and a well-supported gold price, which together encouraged more investors to sell their bar and coin holdings than build their investments.

Europe saw a second year of double-digit declines: annual retail investment for the region totalled 153.3t (-11%). After reaching record historical highs in September, the euro gold price stabilised at elevated levels for the remainder of the year. Demand remains robust, particularly among German-speaking markets: Australia’s Perth Mint attributed a sharp uptick in December gold coin sales to strong demand from Germany. 


  1. According to the CSRC, these fund companies will list products no more than nine months after their approval.

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