Investments in physical gold rose 5% year-over-year in the first quarter.
Investors bought 302 tons of gold bullion and gold coins in Q1, worth $18.4 billion. That’s 14% above the 5-year average, according to the World Gold Council.
The growth in physical gold investment came even as gold prices hit record highs in many currencies.
According to the World Gold Council, persistently high inflation, geopolitical risks and concerns about the spread of the banking crisis have fueled demand for gold.
Investors preferred gold in the form of coins in Q1. Demand for gold coins totaled 96.5 tonnes, a 14% year-on-year increase. Bullion demand was 181.9 tonnes, down 1% year-on-year.
Even with the jump in year-over-year demand, gold buying in the first quarter fell short of the record high of Q4. Higher gold prices encouraged some profit-taking and there was a drop in demand in some markets, particularly India and Europe.
Physical gold demand by region
The bank failure in March lit a fuse among American investors in gold bullion and gold coins. Bullion and coin demand in the US reached 32 tons. It was the fourth strongest quarter in the World Gold Council’s data series. Demand for gold bullion and coins jumped 40% from the fourth quarter of 2022 and saw growth of 4% year-on-year.
The U.S. Mint reported sharply rising coin sales of 288,000 ounces in March. It was the biggest monthly total since October 1998, when the Y2K gold rush was in full swing.
Investment in bars and coins in the first quarter also jumped in China in the first quarter. Total demand is 66 tons. That’s a jump of 34% year-on-year and growth of 7% quarter-on-quarter.
According to the World Gold Council, “The Chinese New Year generated strong demand for gold investments, especially given the strength of the local gold price, which outperformed other local assets, including stocks, bonds and commodities.”
The WGC also said that China’s central bank’s gold buying has also boosted local interest in the yellow metal.
China ranks as the world’s largest gold market.
In contrast, demand for physical gold in India reached 34 tonnes, down 17% year-on-year. Record high and volatile local gold prices dampened demand. According to the World Gold Council, “The speed and magnitude of the rise in the local gold price has deterred new buying and instead encouraged profit-taking for many. Furthermore, the low margins of gold investment products compared to jewelery means that retailers have focused their promotional efforts on the latter.”
Demand was muted in Europe as well. The 38 tonnes of physical gold bought in Europe in the first quarter was less than half the total recorded in the first quarter of 2022 and the lowest quarterly total since the start of the pandemic. The large drop in German demand reduced overall European demand. According to the World Gold Council, “The main reason for the collapse in investment appears to have been the shift back to positive real interest rates for the first time in nine years, due to lower inflation and higher nominal interest rates. The rising euro gold price in January also reportedly encouraged profit-taking, with the net result being more or less zero demand for the month.
All Middle East markets saw bullion and coin demand rise for Q1. Regional investment reached 29 tonnes – a quarterly amount that has only been exceeded on three previous occasions.
It is also noteworthy that investment in bullion and coins in Turkey reached phenomenal levels in the first quarter, surpassing 50 tons for the first time in history. Demand increased fivefold year-on-year and was 32% higher compared to Q4.
ETFs
As investors rushed into physical gold, gold ETFs continued to see outflows in the first quarter. Globally, 29 tonnes of gold have flown out of gold-backed ETFs.
But there were signs of a reversal. For the first time in 10 months, gold flowed into ETFs in March, with global gold ETFs recording a net inflow of 32 tonnes.
North American listed funds saw gold inflows of 10 tonnes in Q1. European ETFs drew outflows of 40t. Asian funds saw modest outflows of under 1t.
ETFs are backed by physical gold held by the issuer and are traded on the market like stocks. They allow investors to play gold without having to buy whole ounces of gold at the spot price. Because their purchase is just a number in a computer, they can trade their investment into another stock or cash out almost whenever they want, even multiple times in the same day. Many speculative investors appreciate this liquidity.
There are good reasons to invest in ETFs, but they are no substitute for owning physical metal. As an overall investment strategy, SchiffGold recommends buying gold bullion first.
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