Research library

Q2 gold demand flat, H1 down 10%

Strong consumer demand recovery and Q2 gold ETF inflows were not enough to offset heavy Q1 outflows.

Interest rates will likely remain key drivers of financial assets. Gold is no exception. Yet, the negative impact of higher rates will likely be offset by the longer lasting effects and unintended consequences of expansionary monetary and fiscal policies created to support the global economy. 

As the global economy emerges from an unprecedented shutdown, both policymakers and investors are operating in uncharted territory. To better understand investor strategies during this important transitional period, we interviewed approximately 500 institutional investors around the world about their portfolios, allocations and views on markets, gold and other individual asset classes.

This paper looks at the vulnerabilities specific to central bank balance sheets and discusses how gold holdings can mitigate the risks posed. In particular, it focuses on the way gold holdings can affect the revaluation reserves that form part of central bank equity.

Inflation fears and momentum ignite gold

Gold registered healthy positive returns for the second consecutive month, erasing the losses accumulated during Q1. Gold ended May at US$1,899.95/oz – its highest level since January and back above its 200-day moving average – representing a 7.5% m-o-m increase.

The volatility of numerous assets has shifted along with the performance of gold, which has recently rebounded to nearly flat on the year. 

Inflation, falling yields and the US dollar pushed gold higher

Marking a turnaround from the first three months of the year, gold rebounded 4.5% in April to finish the month at US$1,768/oz - its highest monthly closing level since January and its first positive monthly return since December 2020.

Strengthening consumer demand mitigated the impact of ETF outflows as global economies continued to recover

Gold has been at the heart of central banking for centuries. Once an official currency, it has become a cornerstone of modern reserve management. Emerging market central banks have been particularly active purchasers in recent years,  and have occasionally acquired gold from local artisanal and small-scale producers. 

After a strong 2020 performance where the price rallied 25% in US dollar terms in an environment where rates fell, gold has been much weaker during 2021, down 5% year-to-date with rising rates.