The Covid-19 pandemic contributed to strong investment growth but damaged consumer demand. While gold hit a new all-time high of $2,067 in August 2020, annual gold demand was at an 11-year low, according to the World Gold Council’s Gold Demand Trends 2020 report.

Notably, the price uncertainty was exacerbated by the onset of the pandemic and a low interest rate environment contributed to record inflows into global gold-backed exchange-traded funds (gold ETFs), which added some 877.1 tonnes (US$47.9 billion) in 2020 to reach US$228 billion in assets under management.

At the same time, annual retail investment demand for gold bars and coins grew 3%, while the pandemic was behind the record low for gold jewellery demand, which fell to 1,411.6 tonnes, a new annual low in the World Gold Council’s data series. Gold buying by central banks also slowed sharply in the past year, down 59%.

The trends reflected in the past year show gold’s dual nature as an investment and as a consumer good, World Gold Council chief market strategist John Reade, highlighted in a presentation attended by SBMA members. Investment demand – and the price of gold – is driven up during times of systemic risk when market participants seek high-quality, liquid assets that preserve capital and minimise losses, he said.

Looking ahead, consumer demand could be boosted by the fortunes of emerging markets as the Covid-19 pandemic gets under control. Andrew Naylor, World Gold Council Head of ASEAN and public policy, noted that China and India, the world’s two largest gold consumer markets, are already showing signs of recovery. Naylor also commented that moderate central bank purchases are likely to continue. Total gold supply fell 4% year-on-year largely due to Covid-19 related interruptions, and will likely recover as disruptions ease.

Economic uncertainty hasn’t abated in 2021. “Covid-19 continues to compound existing risks and produce new ones, creating an attractive environment for gold”, Naylor continued. In his opinion, the key portfolio risks are the high allocations to risk assets in investor portfolios, ballooning budget deficits, and inflationary pressures. A market correction amid already high equity valuations is not out of the question, he added.

As such, there will be sustained interest in gold to hedge risk and as a liquid asset. There is also no evidence of gold losing market share to newer investments like cryptocurrency and bitcoin, Reade said, pointing out that while gold and bitcoin share certain characteristics, they are different investments – gold increases risk-adjusted returns of a portfolio by increasing returns and diversification.

“There is tremendous potential for gold to grow further, particularly among institutional investors. There are many that are not invested in gold, and the World Gold Council is doing a lot to promote its benefits,” Reade said.