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Strong Institutional Demand Drives Gold Demand in Q1

By Andrew Naylor, Regional CEO, APAC (ex China) and Public Policy, World Gold Council

At the end of April, the World Gold Council published our first quarter Gold Demand Trends report, which showed a solid start for the gold market this year, with Q1 gold demand 34% higher than in Q1 2021.

A significant driver of this was strong ETF flows, which at the time of writing, are just shy of their highest ever level. In a quarter that saw the US dollar gold price rise by 8%, gold demand (excluding OTC) increased 34% year-on-year to 1,234 tonnes – the highest since Q4 2018 and 19% above the five-year average of 1,039 tonnes.

Two key factors driving both the price and demand are surging inflation and the Ukraine invasion. Inflation in many markets is at its highest in decades. Here in Singapore inflation is at a 10-year high – fairly modest when compared to the 20-year high we are seeing in Australia, the 30-year high in much of Europe, and the 40-year high in the US. What’s clear is that inflation is more persistent than policymakers had hoped, and this is one of the reasons institutional interest in gold is higher.

Gold as an inflation hedge

Our research shows that gold can be an effective inflation hedge. The average annual return of 11% in US dollars over the past 50 years, has outpaced the US and world consumer price indices (CPI).

Gold also protects investors against high and extreme inflation. In years when inflation was higher than 3%, gold’s price increased 14% per year on average. This number increased significantly with even higher inflation levels. Over the long term, therefore, gold has not just preserved capital but helped it grow.

Research also shows that gold should do well in periods of deflation. Such periods are characterised by low interest rates, reduced consumption and investment, and financial stress, all of which tend to foster gold demand.

Inflation isn’t the only reason investors allocate to gold though. It is considered a fundamentally strategic asset. It can be a source of returns and in the long run has outperformed many other major asset classes. Its unique demand profile means it performs differently to other asset classes, and its lack of positive correlation to many other assets, particularly in downturns, makes it an effective diversifier. It is also liquid – over US$145 billion is traded every day. And as a physical asset it carries no credit risk when owned outright. Taken together, it has the potential to increase risk-adjusted returns. And this is why many institutions hold a strategic allocation to gold.

Q1 gold demand – key global findings

  • Gold ETFs had their strongest quarterly inflows since Q3 2020, fuelled by safe-haven demand. Holdings jumped by 269 tonnes, more than reversing the 174 tonnes annual net outflow from 2021.
  • Bar and coin investment was 282 tonnes in Q1, 20% lower than the very strong Q1 2021 but 11% above its five-year quarterly average. Renewed lockdowns in China and historically high local prices in Turkey were key contributors to the year-on-year decline.
  • Jewellery consumption lost momentum in Q1: demand was down 7% year-on-year at 474 tonnes. The drop was largely due to softer demand in China and India.
  • Central banks added 84 tonnes to global official gold reserves during the first quarter. Net buying more than doubled from the previous quarter but fell 29% short of Q1 2021.
  • The technology sector had a steady start to the year: demand of 82 tonnes was the highest for a first quarter since 2018, driven by a modest uptick in gold used in electronics.

ASEAN trends

Closer to home in ASEAN, the picture was a little mixed. Consumer demand was up in Vietnam, Malaysia, and Singapore. This is due to a mix of post-pandemic economic recovery boosting consumer confidence, and in Vietnam’s case, an exiting of the COVID lockdown that took place in 2021. Thailand and Indonesia though saw a drop in consumer demand. Consumers in these markets tend to be more price sensitive, and the higher local gold prices have encouraged consumers to sell and lock in profits.

Vietnam is particularly noteworthy. Jewellery consumption grew 10% year-on-year to nearly 6 tonnes. This is the first year-on-year increase following the last two quarters of year-on-year decline, and the highest first quarter for Vietnam since 2007. Festivities including the New Year celebrations in February, Valentine’s Day and the God of Fortune Day supported the recovery, as has the recovery of business activity to pre-COVID levels. This is reflected in a robust GDP growth figure of over 5% in the first quarter. Bar and coin demand in Vietnam also grew – by 4% year-on-year – for similar reasons.

Other key regional markets:

  • Consumer demand in Australia grew 24% year-on-year. This was the first time Australia has been included in out gold demand data series and our estimates suggest Australia is a c28 tonne retail market. Institutional investment in Australia is also a significant component of gold demand, and Australian-listed ETFs grew by almost 5% in the first quarter.
  • Japan was more mixed. We saw net selling of bars and coins as consumers – many of them having held gold for a long time – continued to take advantage of the higher gold price and sell. Jewellery demand was up slightly. We are also seeing an increased interest in Japan from younger investors, particularly for gold accumulation plans. The weakening yen is likely to see this interest grow.
  • In South Korea, consumer demand was down 16% year-on-year. The main reasons for this are the higher gold prices and also the COVID situation, with cases spiking significantly in Q1 (although now tapering off).

So, whilst it was a robust first quarter this was driven by institutional investment. The consumer demand picture was more mixed. However, as most countries are starting to move on from the pandemic, it is likely that consumer demand will be supported in the remainder of the year, as one of the biggest drivers of retail demand is economic confidence. Institutional investment demand could be more volatile, with a number of tail- and head-winds having an impact. The tug of war between inflation and interest rates, and continued geopolitical uncertainty, will be large factors affecting institutional investment demand for the remainder of the year.

World Gold Council Singapore Initiatives

The World Gold Council is working on a number of initiatives in Singapore and the region:

  1. Professional development curriculum for gold – as part of our commitment to drive forward industry standards, we are creating a professional development curriculum for gold. This will be launched in Singapore later this year, before being rolled out to other markets worldwide. The curriculum will cover the investment case for gold, gold products, fundamentals of the gold market, role of supply chain participants, international standards, and ESG.
  2. Retail Gold Investment Principles (RGIPs) – The World Gold Council’s professional principles build trust in the global retail gold market. They give gold providers a detailed set of best practices and a road map for implementing them. Following engagement with the retail gold industry, we are rolling out a Singapore version of the Principles to help increase confidence in gold, and embed gold as a trusted financial asset.
  3. EVOLE Singapore – our second institutional investment conference will take place in Singapore in December. The conference is part of a series of events bringing together senior investment decision makers from institutional asset owners and wealth managers to discuss the role of gold as a strategic investment.
  4. Gold Bar Integrity programme – the World Gold Council and the LBMA have joined forces to develop and implement an international system of gold bar integrity, chain of custody and provenance. Over time, this will help consumers, investors, and market participants to trust that their gold is genuine and has been responsibly and sustainably sourced. This is an international initiative, and engagement will continue with stakeholders worldwide, including here in Singapore.

ANDREW NAYLOR joined the World Gold Council in 2016 and since 2020 has led WGC’s regional office in Singapore. Originally part of the central banks and public policy team, Andrew was responsible for WGC’s Islamic finance initiative, culminating in the launch of the AAOIFI Shari’ah Standard on Gold. Andrew started his career at international consultancy firm Cicero Group advising financial institutions on foreign investment and trade policy in Asia, and the global regulatory reform agenda.

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Lee Jia Yi

OPERATIONS & ADMIN EXECUTIVE
Before joining SBMA, Jia Yi worked as an Admin & Reporting Officer in her previous role. She holds a Diploma in Business & Social Enterprise from Ngee Ann Polytechnic. Jia Yi is responsible for managing and maintaining physical and digital files in SBMA, supporting invoicing processes, reconciling receivables and payables, coordinating meetings and conferences. Additionally, she will provide support to the team and assist the Business Director in managing the Association’s office operations and general administrative activities.

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Emily Oh

OPERATIONS & ADMIN EXECUTIVE
Emily Oh is the Operations & Admin Executive, a seasoned professional who values teamwork and effective communication. She is skilled at adapting to new challenges and takes a proactive and resourceful approach to every task. Before joining SBMA, Emily had experience coordinating international travel arrangements and spearheading community initiatives. Her role at SBMA will be providing operational and administrative support for projects and other matters to the team.

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Clara Chang

MARKETING & COMMUNICATIONS EXECUTIVE
Clara Chang joins SBMA as the Marketing & Communications Executive, enriching the team with her extensive experience in content creation, social media management, and digital marketing. Prior to joining SBMA, Clara held the position of Marketing Executive at her previous job. She holds two bachelor’s degrees from the University at Buffalo, one in International Trade and another in Geographical Information Science. Her core duties will include maintaining the SBMA website, managing the quarterly Crucible newsletter, among other responsibilities.

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Mr John Levin

Global Metals
TD Securities
John Levin is the Head of Metal Sales & Trading – APAC at the Toronto Dominion Bank’s Singapore office. Prior to this role, he devoted seven years to leading precious metal sales for the ANZ banking group in his home country, Australia. Notably, from 2009 to 2011, John played a significant role on the management committee of the London Bullion Market Association while serving as the Head of Precious Metals Sales for HSBC Global Banking and Markets in the UK.

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Fabian Lew

MARKETING & COMMUNICATIONS OFFICER

Fabian was a Business Development and Marketing Associate before joining SBMA. He graduated from Singapore Management University with a Bachelor’s degree in Economics.

He has joined SBMA since February, 2022.

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Margaret Wong

BUSINESS DIRECTOR

Margaret Wong, Business Director at SBMA (Singapore Bullion Market Association), brought valuable experience from her previous role at the World Gold Council (WGC). Her tenure at WGC provided her with extensive exposure to the gold community in Singapore and the broader region. This background has been instrumental in establishing strong working relationships within the industry.

Margaret’s role at SBMA encompasses a diverse range of responsibilities. She oversees office management, business support processes, finance, and administrative functions essential for the smooth operation of the team and management committee. Additionally, Margaret handles membership matters, member communications, and addresses public inquiries related to SBMA.

One of Margaret’s key responsibilities is coordinating with the Event Management Company for SBMA’s prestigious annual event, the Asia Pacific Precious Metals Conference. This flagship conference plays a crucial role in the industry, making her involvement pivotal in its success.

Described as resourceful and self-motivated, Margaret Wong brings a wealth of skills and experience to her role at SBMA, ensuring efficient operations and effective engagement within the precious metals community in Singapore and beyond.

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Albert Cheng

Chief Executive Officer

Albert Cheng joined the World Gold Council in March 1993 as a Regional Manager, becoming Managing Director, Far East in 2003. He retired at the end of March 2015 and was subsequently named its Advisor. He has also been an International Advisor to the Shanghai Gold Exchange since 2002.

His marketing career began with Dentsu Young & Rubicam, Hong Kong in the early 80’s. He began gold marketing in July 1985 when he joined the Royal Canadian Mint as a Regional Manager for Southeast Asia.

He was appointed honorary CEO of SBMA in November 2015. He is responsible for the success and strategic development of SBMA, represents the interests of the Association, and is responsible for all the legal and regulatory aspects of the work of the Association. He is the primary contact for regulators and government bodies on bullion market development.

Ms Pawan Nawawattanasub

Ms Pawan Nawawattanasub

CEO
YLG Bullion Singapore Pte Ltd

Pawan is the CEO of YLG Bullion Singapore and founder of YLG Bullion International. She has almost 40 years of experience in the jewellery industry and established YLG in Thailand in 2003. In 2012, she brought YLG to Singapore. She sits on the Board of Directors of the Thailand Gold Traders Association, the Thailand Futures Exchange’s Arbitration Committee, and the Rotary Bangkok committee. She holds a master’s degree in Political Science.

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Mr Shaokai Fan

Head of Asia-Pacific (ex China) and Global Head of Central Banks
World Gold Council
Shaokai Fan is the Global Head of Central Banks at the World Gold Council, responsible for advising governments on gold matters, and enhancing the gold market through engagement, dialogue, and thought leadership. He works directly with central banks and sovereign wealth funds on investment considerations. Prior to this position, Shaokai held multiple roles at Standard Chartered Bank, including Director for Asia Strategic Initiatives and Associate-Director for Public Sector coverage. Shaokai holds a Masters of Public Administration from Columbia University and the London School of Economics, and an undergraduate degree in finance and economics from New York University.

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Mr Alan Liew

Head of Bullion & Commodities Trading
United Overseas Bank Limited
Alan is Head of Bullion and Commodities Trading for Group Trading in Global Markets, United Overseas Bank (UOB). Alan joined UOB and started the bank’s commodities trading business in 2014, previously he spent eight years in Standard Chartered Bank (SCB) trading both precious and base metals. During his tenure at SCB, he obtained the SGE gold trader licence and was part of the pioneering team for the SGE business and the FX quantitative trading team. Prior to trading, he worked for Monetary Authority of Singapore in the Financial Risk Management Division. He holds a BSc (Hon) in Computer Science at National University of Singapore and a MSc in Financial Engineering at Nanyang Technological University.

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Mr Nikos Kavalis

Managing Director
Metals Focus Singapore Pte Ltd
Nikos Kavalis is a founding partner of Metals Focus. He has over 20 years of experience in precious metals, having previously worked for the Royal Bank of Scotland and GFMS. Since September 2019, Nikos has been based in Singapore, where he also runs the local subsidiary of Metals Focus.

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Mr Nuttapong Hirunyasiri

CEO
MTS Gold Global Trading Pte Ltd
Nuttapong Hirunyasiri is the CEO of MTS Gold Group, one of Thailand’s top 10 companies and top 3 bullion companies. He started MTS Gold Group’s first overseas office in Singapore and has been expanding the group business internationally. He focuses on product development and innovation for gold investment, with the aim of being a leader in providing the full suite of gold investment services in the ASEAN region.

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Mr Raman Walia

Executive Director, Head of Commodities Sales – APAC
JP Morgan Chase Bank N.A.

Raman is Executive Director and Head of Commodities Sales, APAC, for J.P. Morgan. He joined JPMorgan in 2008 in New York, moved to Singapore in 2011, and helped expand the precious metals business in the region. Raman has an MBA from Cornell University, and likes to travel in his spare time.

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Mr Andrew Clarke

Head of Brink’s Global Services
Brink’s Global Services Pte Ltd

Andrew Clarke is the Head of BGS (Brink’s Global Services) for Singapore, Indonesia, Malaysia and Brunei. He has held various leadership positions throughout his career in secure logistics and risk management with Brink’s, which started in Hong Kong in 2010. Andrew relocated to Singapore in 2018 to expand the precious metals line of business along with Brink’s portfolio of services and industries.

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Mr Kazuya Naoki

Head of Metals, Asia
ICBC Standard Bank Plc, Singapore Branch

Kazuya (Kaz) Naoki is the Head of Metals, Asia of ICBC Standard Bank in Singapore and is responsible for the precious & base metals sales and trading in the region. He joined Standard Bank Plc Tokyo Branch in 2008 and was relocated to its Singapore Branch in 2013 whose controlling stake was acquired by the Industrial and Commercial Bank of China in 2015. Prior to joining Standard Bank, Kaz spent 11 years focusing on commodity trading and risk management with Mitsui & Co in Tokyo, Sydney and London. Kaz has been serving on the SBMA Management Committee since 2016.

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Mr Vinh Nguyen

Head of Precious Metals, Asia
StoneX APAC Pte Ltd

Vinh Nguyen joined StoneX Group in Singapore at the beginning of 2008 and responsible for its APAC precious metals activities since 2019 until now.

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Mr KL Yap

General Manager, Singapore Refining Business Unit
Metalor Technologies (Singapore) Pte Ltd
KL YAP is the General Manager of Metalor Technologies (Singapore) Pte Ltd’s Singapore Refining Business Unit. He joined Metalor in 2013, initially in Refining Sales. In 2014, he became Refining Business Unit Manager, leading the development of a new precious metal refinery. KL was Vice Chairman of SBMA from 2017 to 2021, now serving as Chairman. With a degree in business commerce, finance, and marketing, he brings prior experience from refinery and heavy industries.