Q2 review and outlook

29 July, 2021

Investor sentiment turned more positive, helping to lift gold prices in Q2.

  • The US dollar gold price gained 4% during Q2, generating an average price for the quarter of US$1,816.5/oz, marginally higher than in Q1’
  • After two quarters of sizable outflows gold ETFs saw moderate inflows in Q2 and this, along with a modest improvement in net long positioning in the futures market, provided support to the price
  • Looking ahead, our likely base case for 2021 is for growth in jewellery as well as bar and coin demand to offset lower levels of ETF and OTC investment compared with 2020.

Q2 review

The gold price increased by 4% throughout Q2, following the 10% decline in Q1. Prices rebounded during April and May on continued fears of inflation, US dollar weakness and lower real rates, before dipping again in June following a more hawkish than expected statement by the US Federal Reserve (Fed). 

Our short-term price performance model suggests that much of the price recovery during Q2 was due to a combination of:

  • concerns over rising inflation expectations and inflation surprises
  • a weaker dollar
  • lower nominal rates.

These factors led to improving investor sentiment towards gold. Outflows from global gold ETFs slowed sharply in April, before reversing in May and resulting in net inflows of 40.1t for Q2. This was reflected in net long positioning turning more bullish in April and May. Positioning in gold futures on COMEX – which we believe closely mirrors OTC investment1 – rose to US$43bn, equivalent to 731t – the highest level since February. While net positioning subsequently dipped in June in reaction to the Fed statement, it remained above the low from the end of March, and short positions remain relatively modest. In summary, improving sentiment in this area of gold investment would likely have provided support to the gold price during much of Q2, together with healthy levels of buying by central banks.


Gold prices recovered in Q2, aided by a return to ETF inflows

Gold prices recovered in Q2, aided by a return to ETF inflows

Gold price in various currencies, indexed to January 2020

Gold prices recovered in Q2, aided by a return to ETF inflows
Gold price in various currencies, indexed to January 2020
*Data as of 30 June 2021. Source: ICE Benchmark Administration, Refinitiv Datastream

Sources: ICE Benchmark Administration, Refinitiv Datastream; Disclaimer

*Data as of 30 June 2021.


Consumer demand continued to recover from 2020 levels, when jewellery demand in particular – and technology demand to a slightly lesser extent – were slashed by the pandemic. While Q2 jewellery rebounded strongly y-o-y, it slowed from Q1 onwards and remains relatively weak compared with longer-term averages, suggesting there is some way to go before a return to 
‘normal’ pre-pandemic levels. 

Overall, the average gold price in Q2 was up marginally compared to Q1 (+1%) but was 6% higher y-o-y. This mixed picture is consistent with the demand and supply dynamics seen over the period. 

The stable q-o-q average price performance can be explained by two competing dynamics:

  • a recovery in ETF investment and robust central
  • bank buying
  • a significant contraction in both jewellery and bar and coin demand combined with an increase in total gold supply

The stronger y-o-y average price performance, meanwhile, was supported by the significant recovery in jewellery demand (+60%) and materially higher central banks purchases (+294%), partly offset by softer investment demand (-33%) and higher mine production (+16%).


Using Qaurum, our web-based valuation tool, we analysed the expected behaviour of various sectors of the gold market using the base case macroeconomic scenario provided by Oxford Economics2 – a scenario that we have dubbed ‘Recovery Accelerates.’4 Combining this analysis with the in-depth qualitative insights generated from our field research, allows us to better understand developing trends of demand and supply over the coming quarters.4 

Jewellery demand could be in the range of 1,600-1,800t for the year, well above 2020 levels but below its 5-year average. Continued global economic recovery should support consumer demand for global gold jewellery throughout 2021, although continued COVID disruption in some markets – most pertinently, India – will provide a headwind. While pent-up demand could serve as a boost, a strong price recovery in H2 could push jewellery demand towards the lower end of the range.  Another strong variant-driven COVID-19 wave would create additional challenges, but we believe a repeat of last year’s low jewellery demand levels to be highly unlikely.  

Investment demand could hold up well in 2021, in the region of 1,250-1400t – softer than last year but in line with the ten-year average. Bar and coin demand is likely to gain on the back of rising inflation and gold’s strong returns momentum of the last couple of years, potentially reaching 1,100-1,250t. ETF investment, meanwhile, will almost certainly not maintain 2020’s record pace. Instead, we expect demand to return to a more sustainable level, with annual inflows at or below the 10-year average of 150t on the back of higher yields and more positive financial market sentiment when compared to 2020. In addition, the picture for OTC investment –which is not directly observed in our data – could be similar: it is likely to be positive, albeit substantially below 2020 levels as a combination of rising yields and a lack of positive price momentum restrain further gains.

Central banks are likely to continue buying gold on a net basis in 2021 at a similar or higher rate than in 2020, driven by a continued focus on diversification and risk management. The results of our fourth annual central bank survey support this view, with one-fifth of the participating central banks expecting to increase their reserves over the next 12 months.

The supply of gold in 2021 is expected to increase modestly, as mine production growth is partly offset by a lower level of recycling activity. Measured against the COVID-disrupted baseline of 2020, our expectations are that gold mine production will recover this year. Planned expansions and production ramp-ups in some regions, combined with the gold price having significantly outpaced production costs over the past few years, should provide further support. These factors suggest we could see mine production returning to levels more in line with recent years. In contrast, annual recycling could contract by between 100 – 200t from 2020 levels. Near-market supplies appear depleted following two years of relatively elevated activity, while strong economic growth may mitigate the need for distress selling and a more modest gold price appreciation makes recycling less attractive. However, should the pandemic worsen, we could risk seeing higher loan defaults in certain markets, most notably India.


  1. OTC investment is not directly observed but can be inferred through the demand and supply imbalance and positioning in reported investment positioning in the futures market.

  2. Oxford Economics is a leader in global forecasting and quantitative analysis and a specialist in modelling. Their scenarios are based on their Global Economic Model updated as of 26 May 2021.

  3. A detailed description of this and other scenarios as well as their implications can be found at Goldhub.com. Qaurum, is customisable and users can modify any of the variables included on the available hypothetical scenarios to best reflect their own view on the global economy.

  4. Note that the resulting performance of various investment outcomes that can generated through use of Qaurum, the Gold Valuation Framework and other information are hypothetical in nature, may not reflect actual investment results and are not guarantees of future results. Neither WGC nor Oxford Economics provide any warranty or guarantee regarding the functionality of the tool, including without limitation any projections, estimates or calculations. See important information and disclosures.

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