2 May, 2019

Bar and coin demand marginally weaker at 257.8t; ETFs saw inflows of 40.3t.

  • Bar demand fell 5%, chiefly due to weakness in China and Japan.
  • Contrastingly, coin demand increased in several markets, pushing the global total up 12%.
  • Investors globally added 40.3t to gold-backed ETF holdings in Q1.
Tonnes Q1'18 Q1'19   YoY
Investment 288.4 298.1 3%
Bar & coin 261.3 257.8 -1%
  India 32.3 33.6 4%
  China 77.3 71.2 -8%
Gold-backed ETFs 27.1 40.3 49%


Gold-backed ETFs saw a strong start to the year, with 40.3t of global inflows during Q1. In value terms, those inflows were equivalent to US$1.9bn. But flows during the quarter were not just one way – there were notable monthly variations: chunky inflows in January (+71.4t) were partially offset by February outflows (-32.9t) while March was broadly neutral (+1.8t). Global AUM grew almost 2% during Q1, to reach 2,482.8t (US$103.4bn) by quarter-end. 

At a regional level, products listed in the US and Europe both had decent inflows – of 26.4t and 20t respectively – while AUM in funds listed in Asia and other regions declined slightly (-6.1t).

US-listed funds grew by 2% during Q1. Investors added 26.4t to their holdings of North American-listed funds, equal to US$1.1bn of inflows. But investment flows were not consistent throughout the quarter.  Strong January inflows (+53t) were supported by the US government shutdown, an escalation in US/China tensions after the White House cancelled a planned trade discussion, and growing doubts over the health of the US economy. February saw much of those flows reversed as the more tactical investors took profit on their holdings.

Despite US stock markets generating their strongest quarterly returns in ten years, investor sentiment in Q1 was underpinned by the shifting stance of the Federal Reserve, which adopted a more neutral monetary policy approach. The concurrent shift in market expectations – from a predicted scenario of US rate rises to one in which rates stay unchanged over the remainder of this year – supported demand for gold-backed ETFs. And this more dovish outlook should underpin regional demand for the rest of 2019, although continued strength in the stock market would be a headwind.  

AUM in European-listed ETFs remains near all-time highs. As the euro gold price surged to an 18-month high in the early weeks of the year, investment flowed in to regional gold-backed ETFs (+20.1t). AUM in these products hit record levels, breaching 1,200t.  Since the January influx, investment has been steady; marginal February outflows were fully reversed in March.

Geopolitics remains a key driver of investment in the region, with investors prizing gold’s safe haven status amid the background of low/negative yields, financial market volatility and geopolitical worries. The forthcoming European parliamentary elections and the possibility that right-wing, populist parties will gain more of a foothold in the region, are a looming concern. As are Italy’s burgeoning budget deficit and the ongoing Brexit saga. The latter helps to explain why holdings in UK-listed funds remained near all-time highs in Q1.

Gold-backed ETFs listed in other regions saw small outflows in Q1. Asian-listed funds lost 4.9t, much of which came from China. Continued rotation out of Bosera’s funds meant a decline of 2.1t in the holdings of those two products. And the Huaan Yifu Gold fund lost 2.9t as investors fixed their attention on the rallying domestic stock market. 

Bars and coins

Bar and coin demand totalled 257.8t in Q1 2019, down 1.4% compared to the same period last year. This was largely due to a drop in Chinese demand and net disinvestment in Japan, which pushed global bar demand down 5% y-o-y. Official coin demand, however, had its best start since 2014, rising 12% y-o-y to reach 56.1t. Iran, Turkey, South Africa, the UK and US accounted for most of this growth. 


China and Japan pushed global retail investment demand down

China and Japan pushed global retail investment demand down

Bar and coin demand (y-o-y tonnage change, top and bottom 10)
Y-o-y tonnage change 3.2 0 -7.7

Sources: Metals Focus, World Gold Council; Disclaimer


Retail investment demand in China fell 8% to 71.2t in Q1. The year started strongly with many investors taking advantage of the dip in the renminbi-denominated gold price ahead of Chinese New Year. But demand petered out as the quarter progressed, with relatively low levels of retail interest in February and March. Instead, many retail investors in China were more focused on the surging stock market – the Shanghai Shenzhen CSI 300 was up a staggering 30% in Q1 – and stronger currency, both of which were aided by recent fiscal and monetary policies designed to boost domestic economic growth. 

There are signs that the domestic supply and demand balance in China’s gold trading market is getting tighter. Gold imports fell to their lowest Q1 level since 2014, as authorities controlled gold import quotas. The fall in supply helped push up the premium of the Shanghai Gold Benchmark Price over the LBMA Gold Price.  


Rising China premium reflects tighter supply

Rising China premium reflects tighter supply

Sources: ICE Benchmark Administration, Shanghai Gold Exchange, World Gold Council; Disclaimer

Japan is not the gold market it used to be. Around the turn of the millennium, demand occasionally exceeded 100t a year. Today, it is not unusual for Japan to be a seller of bars and coins. In Q1 2019, it saw net disinvestment of 6.2t, a sharp reversal on the 1.5t it bought in Q1 2018, as investors took profits from the 14% rally in the local gold price between August 2018 and February 2019. But while Japan’s retail bar and coin market contracted, demand for kihei jewellery – chunky, high-carat, quasi-investment jewellery – flourished. Please see the jewellery section for more detail.  


Japan's retail investment market is a shadow of its former self

Japan's retail investment market is a shadow of its former self

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


A Q1 price dip in India boosted demand 4% y-o-y. Demand for bars and coins in India rose to 33.6t in Q1, as the rupee strengthened and investors took advantage of the local gold price coming off its recent highs. But while demand increased, it remains relatively soft, with rising equity markets continuing to be a source of interest for many urban investors.

Although it currently represents only a small part of demand, the landscape of internet investment gold providers continues to evolve. Google Pay is a new entrant to the market, recently announcing a deal with India’s only LBMA-accredited refiner, MMTC-PAMP. India’s digital-savvy gold investors now have the option of purchasing gold for as little as one rupee using apps on their smartphone, such as PayTM Gold, PhonePe, MobiKwik, Safe Gold, and now Google Pay. 

South East Asia’s largest markets remained healthy. Retail investment demand in Thailand – the region’s largest gold market – was steady in Q1 at 21.3t. Strong demand around the lunar new year (TET holiday) in Vietnam buoyed the retail bar and coin market, which was up 5% y-o-y at 13.3t. And demand in Indonesia rose 5%, as the domestic gold price steadied after a burst of volatility towards the end of 2018. 

Demand in the Middle East was up 10% y-o-y. This was mostly due to the strength of the Iranian bar and coin market, up 20% y-o-y. This outweighed the contraction of demand in Saudi Arabia and the UAE, both down 5% y-o-y. 

While Iran saw strong y-o-y growth, demand eased q-o-q. The continued free fall of the Iranian rial – down around 21% in Q1 2019 – made gold unaffordable for some local retail investors. 


Iran bar and coin demand has come off recent highs

Iran bar and coin demand has come off recent highs

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


After a subdued H2 2018, the Turkish bar and coin market sprang back to life in Q1. Demand rose 25% y-o-y to reach 16.4t as investors became increasingly unsettled by the economic and political backdrop. Unemployment edged towards 15% and inflation crept higher, while domestic and international political tensions added to investor concerns. 

US bar and coin demand rose 38% y-o-y. This positive start to the year is more reflective of a weak Q1 2018 than a strong rebound in retail investor interest in gold. At 7.6t, demand was still relatively soft – comfortably below the three- and five-year quarterly averages of 12.9t and 13.7t respectively. January stood out as a particularly strong month, but many dealers were disappointed with the lack of retail interest when the gold price fell beneath US$1,300 in March. 

Economic and political uncertainty drove higher investment in Europe.  Bar and coin demand rose 10% to 44t as investors became increasingly aware of the slowdown in economic growth, a heightened possibility of recession, and continued political risk. Germany, the region’s largest gold market, rose a modest 3% to 24.1t. The main drivers of growth, however, were Europe’s smaller markets. In the UK, demand rose 58% to 3.6t – equivalent to £114.8mn (US$149.5mn) – the highest quarterly value since 2012, as investors looked to protect their wealth against the potential turmoil a chaotic departure from the European Union could bring. 


Brexit boosts UK investment value to six-year high

Brexit boosts UK investment value to six-year high

Sources: Datastream, ICE Benchmark Administration, Refinitiv GFMS, World Gold Council; Disclaimer

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