Annual gold production on track to beat 2020

Global gold production is edging higher as demand in the June quarter bounced back to levels seen last year following an increase in consumer investment, World Gold Council’s (WGC’s) latest trends report has revealed.

Demand increased by 9 per cent against the previous quarter to 955.1 tonnes, pushing it close to the 960.5 tonnes recorded during the same period a year earlier, WGC reported.

The June quarter gold demand report found that global reserves also grew by 199.9 tonnes, which was the highest quarterly level achieved since the second quarter of 2019.

WGC forecasts that gold mine production for the 2021 financial year will likely be higher than 2020 levels due to the industry’s recovery from COVID-19.

According to the report, gold bars and coin purchases increased to 243.8 tonnes due to strong demand from retail investors.

WGC stated that this was the fourth consecutive quarter of year-on-year gains for physical gold products.

Consumer demand for gold jewellery in the June quarter rose to 390.7 tonnes which is 60 per cent higher than the corresponding period in 2020. Despite strong consumer demand, institutional investment told a different story.

“There were only modest net inflows of 40.7 tonnes during (the second quarter) into gold exchange traded funds (ETFs) – financial instruments backed by physical gold whose flow ‘swings’ are often driven by institutional buyers,” WGC stated.

“These inflows only partially offset the heavy outflows the industry witnessed in the previous quarter, making 2021 the first time since 2014 with net outflows in the first six months of the year.”

The spike in consumer demand was credited due to concerns over inflation, a weaker dollar price and lower rates. WGC expects bar and coin demand to continue offsetting ETF inflows and over-the-counter investment for 2021.

The average gold price was marginally higher in the second quarter at $US1816.50 per ounce ($2454.42).

WGC estimates that investment demand will be between 1250 to 1400 tonnes in the second half of 2021, which is slightly lower than last year but in line with its 10-year average.

“As the global economic recovery continues, we have been encouraged to see consumer demand returning, with strong year-on-year growth in jewellery,” WGC senior markets analyst Louise Street said.

“But investment is a more complex picture. Despite evidence of strategic buying from both individuals and institutions, tactical investors had a more mixed impact in the first half of the year. This was partly seen through gold ETFs where inflows in the second quarter only slightly dampened the effects of the preceding quarter’s sell-off.

“Looking ahead, we expect continued improvement in the consumer elements of demand for the rest of the year. And while ETFs will most likely not repeat the record performance of 2020, the need for effective risk hedges and the continued low-rate environment supports our view that investors will add to their strategic allocations throughout the rest of the year.”

Total gold supply has risen by 13 per cent year-over-year in the June quarter to 1172 tonnes.