Buying Gold Remains a Sound Decision Despite Demand Decrease, says J. Rotbart & Co.

The World Gold Council’s Demand Trends for Q3 2020 reports some downward trends, but J. Rotbart & Co. interpret these as indicators for a further strengthening of gold prices in the future.

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Gold demand in some areas dropped due to Covid

According to the World Gold Council (WGC) report on quarterly gold demand trends, the third quarter of 2020 saw a drop to the lowest level since Q3 2009. Specifically, Q3 2020 recorded 892t, which was a 19% drop from the same period in 2019. Nevertheless, if we look at the demand for the 2020 year to date, the demand only dropped by 10%. This period also saw gold hit record highs, with prices crossing 2,000 USD in August 2020. Therefore, investors must look closer at the factors affecting demand across various types of gold. Covid-19 was, is, and will continue to be a major influence on all sectors. We at J. Rotbart & Co. have evaluated the reported numbers and remain confident in the dependability and profitability of investing in physical gold. (Please note: Unless otherwise stated, we have drawn all statistics cited in this article from WGC’s Demand Trends for Q3 2020.)

Pandemic hindered gold jewellery purchases

Covid-19 lockdowns and travel restrictions, coupled with the rising price of gold, dropped gold jewellery demand by 29%, year-on-year. Significant decreases in China and India were the main drivers. Gold jewellery, compared to other types of physical gold purchases, tend to be bought as gifts for special occasions such as weddings, most of which were postponed. Furthermore, buying gold jewellery in such markets as India was side-lined as families needed to focus on budgeting for essentials first. Nevertheless, the Q3 2020 gold jewellery demands were still an improvement over those of Q2 2020, with China going from 33% to 24% and India from 74% to 48%. So, these double-digit decreases played a great part in bringing overall gold demand down. Nevertheless, once lockdowns are lifted and weddings and celebrations begin again in earnest, gold jewellery demand will rise once again.

Gold demand for industrial use also impacted

A slowdown in manufacturing due to Covid, both in product demand and production, led to a decrease in gold in technology and other industrial uses. However, although these figures were 6% for electronics and technology and 10% for dentistry and industrial applications, there was an improvement quarter-on-quarter of 10% for electronics and 32% for industrial uses. Comparing Q3 2020 performance to the same period last year, as with gold jewellery, may not be fair as Covid-19 has had a devastating impact on discretionary product consumption. Individuals, worried about their employment and financial futures, may be less likely to buy gold jewellery or new big-ticket technology products. However, as the improved quarter-on-quarter demand shows, gold demand for technology is steadily getting better.

Central banks sold gold to support economies

Covid-19 has caused governments around the world to work with their central banks to support their local economies. As they looked to inject their economies with money, many central banks turned to selling their gold reserves. So for the first time since Q4 2010, central banks became net sellers of gold. For a more recent comparison, central banks and other governmental institutions went from buying 141.9t in gold in Q3 2019 to selling 12.1t in Q3 2020. However, for the year to date, central banks still remain net buyers, and the WGC expects this trend of buying to continue. Gold reserves may become depleted, but not by much. And as monetary policies strengthen economies, central banks will return to gold as a stable, safe harbor investment for their portfolios.

Gold bar and coin demand remained strong

As investors sought to protect their wealth during the economic and market turmoil brought about by Covid-19, gold bullion bar and coin demand grew. While there was some profit-taking among investors taking advantage of record-high gold prices, gold bar and coin demand increased 49% for Q3 2020 from the same period in 2019. The WGC saw noticeable increases in countries that were coming out of lockdown, like China. Significantly, year-to-date gold coin purchases for 2020 (220.49) is remarkable compared to the same period in 2019 (153.78t), considering that gold prices were at record highs and so were financial and economic insecurities due to Covid-19. This steady demand for gold bars and coins for investments reinforces our stance that physical gold should be a part of every portfolio.

Economic recovery will increase overall demand

As we have detailed, the overall drop in gold demand for Q3 2020 compared to the same period last year actually reveals the importance of gold as an investment. Even as some types of gold are in less demand, we can see a strong demand for gold bars and coins that will only continue to improve. And as communities adjust to life with Covid-19 or, even better, if and when an effective vaccine program becomes globally available, we will see improvements all around:

• Gold jewellery demand up with lockdowns easing
• Industrial gold demand better with manufacturing returning
• Central banks return to bolstering gold holdings for stable portfolios

Gold bars and coins will continue to be in high demand, and as the other demands improve, gold prices should increase to match.

J. Rotbart & Co. can help you with your gold bar and coin needs

J. Rotbart & Co. recommends every portfolio holds a percentage of gold bullion bars or coins. As we have outlined here, precious metals investment should only go from strength to strength as we look forward to increased overall gold demand. From before Covid-19 to life now with Covid-19, gold bars and coins have proven themselves a stable, safe, and profitable investment as we investigate the best ways to protect our wealth during these uncertain times. For more information about investing in gold or other precious metals, please contact J. Rotbart & Co. today. Our expert team members are happy to discuss your precious metals needs and options.

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