Global gold demand dropped 28 per cent annually in the fourth quarter of 2020 to 783.4 tonnes, the weakest performance since the second quarter of the global financial crisis in 2008, the World Gold Council said in a statement on Thursday.
Demand for gold weakened since the onset of the pandemic, resulting in a 14 per cent decline in annual demand to 3,759.6 tonnes. This was the first time annual gold demand fell below 4,000 tonnes since 2009, according to the World Gold Council’s Gold Demand Trends report.
“The impact of the Covid-19 pandemic was felt across the gold market throughout 2020, and Q4 was no different,” Louise Street, senior markets analyst, research at the World Gold Council, said. “Consumers around the world remained at the mercy of lockdowns, economic weakness and high gold prices, resulting in a new annual low in jewellery demand.”
Gold jewellery demand in the three months to December 31 declined 13 per cent annually to 515.9 tonnes and was 34 per cent lower for the year at 1,411.6 tonnes, the report said.
The two largest markets, India and China, contributed the most to the annual decline, which was caused by a combination of the economic impact of the pandemic and record high gold prices.
Investors concerned about depreciating currencies as central banks flooded economies with monetary stimulus flocked to gold as a store of value last year, pushing up its price by about 25 per cent to more than $1,898 per ounce at year-end, having peaked above $2,063 per oz in June.
Gold jewellery demand in the UAE in Q4 fell 20 per cent on an annual basis, but surged 80 per cent compared with the previous quarter as demand from tourists picked up, the WGC's report said.
While jewellery demand volumes are likely to remain relatively subdued in the short term, mass vaccination programmes and signs of improving economic activity may result in tentative improvement in the sector this year, the council said.
Demand from investors meant the amount of gold held in exchange-traded funds and other investment vehicles increased by 40 per cent to a record 1,773.2 tonnes in 2020. Most of the growth came in the form of gold-backed ETFs, but was also aided by physical bar and coin demand growth in the second half of the year.
As we move into 2021, we expect that many of the same underlying drivers of gold demand should remain in place – ultra-low rates, fiscal stimulus, lofty stock valuations and the ongoing impact of Covid-19
Annual inflows into gold ETFs reached a record 877.1 tonnes, or $47.9bn, in 2020, despite outflows of 130 tonnes during Q4. The conclusion of the US election removed a key element of uncertainty from the market and encouraged some of the shift out of gold ETFs, as did announcements about successful Covid-19 vaccine trials, prompting a shift into riskier assets like stocks, the report said.
“As we move into 2021, we expect that many of the same underlying drivers of gold demand should remain in place – in particular, ultra-low [interest] rates, fiscal stimulus, lofty stock valuations and the ongoing impact of Covid-19,” the World Gold Council said.
Demand for gold bars and coins grew 10 per cent in Q4 to 268.7 tonnes and by 3 per cent annually to 896.1 tonnes.
Gold buying by central banks, however, slowed sharply by 59 per cent in 2020 to 273 tonnes. Global official gold reserves grew by 44.8 tonnes during the final quarter, more than reversing the 6.5 tonnes of net sales in Q3. Turkey was the largest annual gold buyer, adding 134.5 tonnes to its official gold reserves in 2020. The UAE added 23.9 tonnes to its gold reserves.
Total annual gold supply also took a hit and was 4 per cent lower annually at 4,633 tonnes, the biggest annual decline since 2013. The drop was largely due to coronavirus-related disruptions to mine production, the council said.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
