Growing global demand for gold amid banking sector turmoil and geopolitical tensions

The global demand for gold from investors is witnessing an increase due to instability in the banking sector, geopolitical tensions, and a challenging economic environment, prompting individuals to turn to the precious metal as a safe-haven asset, according to the World Gold Council (WGC).

The WGC’s most recent Gold Demand Trend report revealed that demand for gold bars and coins rose by 15% year-on-year to 1.9 tonnes in the first quarter of 2023 from 1.6 tonnes a year prior. Meanwhile, domestic jewellery demand experienced a 6% decline during the same period, down to 2.1 tonnes.

Overall consumer demand for gold in the country increased by 3% from the same timeframe in 2022, reaching 3.9 tonnes, as noted in the report released on Tuesday.

The driving forces behind this 6% year-on-year drop in Thailand’s jewellery demand during Q1 were rising gold prices and increased costs of living, stated Shaokai Fan, the council’s head of Asia-Pacific region (excluding China) and advisor to central banks.

Globally, central banks contributed to a record-high demand by adding 228 tonnes to their reserves.

Fan highlighted that “sustained and significant purchases from the official sector emphasise gold’s role in international reserve portfolios during times of market volatility and heightened risk.”

He also noted that investment demand encountered a mixed landscape during Q1. In March, the US economy’s systemic risk primarily drove renewed inflows into gold-backed exchange-traded funds (ETFs), which partially counterbalanced January and February outflows. This resulted in a modest decline of 29 tonnes in quarterly outflows.

Meanwhile, bar and coin investment saw a 5% year-on-year increase to 302 tonnes, Fan added.

Louise Street, a senior markets analyst at WGC, confirmed that the positive demand for gold ETFs persists into the second quarter.

“As the threat of developed market recession looms, inflows may accelerate later in the year,” she suggested.

Despite potentially lower levels compared to the record highs of last year, central bank purchases are expected to remain robust and serve as a demand cornerstone throughout 2023, Street added.

She emphasised the likelihood of investment demand growth this year, considering the diminishing headwinds from both the strong US dollar and interest rate hikes.

With some economies on the verge of recession, Street predicted that “gold’s role as a long-term strategic asset could take centre stage, as it has historically delivered positive returns in five out of the past seven recessions,” reports Bangkok Post.