Reduced gold supply amid higher prices - supply down

IOM3 Content Cafe
,
1 May 2020

The start of 2020 has presented many challenges resulting in a clear impact on gold supply and demand. The World Gold Council’s research team presented their findings related to gold markets in Q1 this morning.

The start of 2020 has been an extraordinary quarter for gold. Covid-19 has clearly been the single biggest factor impacting gold demand. Fears over Covid-19 helped drive gold prices up. Record highs were seen in several areas USA, India and Turkey.

Clearly, the global pandemic has impacted supply with mine production disrupted resulting in a 3% fall year-on-year to a 5 year low. Several projects reduced or halted operations with the largest declines seen in China, Peru, Argentina and South Africa.

Annual production of gold is certainly likely to suffer as a result of lockdown, but the global mining community does not view this as a structural issue or enduring. While there will be an impact on exports from mining countries due to lockdown and transportation limits, there is a resilience of gold supply.

Overall, the macro-economic situation is viewed as positive for gold. Even before Covid-19, 2020 faced issues that looked supportive for gold. These include low interest rates and geo-political uncertainty, government responses to Covid-19 have enhanced these with even lower interest rates and financial stimulus.

Safe-haven investment has driven demand with jewellery seeing the lowest level of quarterly demand at a 10-year low. Lockdown would have impacted this – a higher gold price combined with lower incomes and reductions in purchasing non-essentials.

Similarly, recycling activity slowed sharply, supply fell 4%. This may be due to lockdown preventing physical exchange of gold or to consumers holding gold in hope of further price increases.