Into the second quarter of the year, gold demand decreased by 11%, the lowest recording since 2009, with demand for the first half of the year down by 6% and jewelry sales falling. The main influence on its market being the Covid-19 pandemic as it has curtailed consumer demand and imposed travel restrictions, which made it harder to supply. Lockdown measures implemented across the world have disrupted mineral exchanges and traditional markets which in turn caused most businesses to grind to a halt or close to avoid losses and/or bankruptcy.
The global response by governments and central banks to the pandemic has included massive liquidity injections which charged record flows of 734 tonnes into gold exchange traded funds. This helped increase the price of gold, gaining 17% in dollar terms and reaching record highs in other numerous currencies, over the first half of the year after a 10% increase in the second quarter.
The supply of gold was affected as well, falling by 6% as both mine production and recycling were impacted by the restrictions. Gold demand in industrial applications had decreased by 19%, with some mines being closed or placed under maintenance due to inability of miners to go to work given the restrictions. Gold mine production also fell in the second quarter of the year by 12% and a decline of 36% followed suit after physical gold demand falling to 677 tonnes.
Most businesses and investors moved away from the assumed safety gold coins and bars possess with sharp declines in demand observed across Asian markets. Take for instance the 65% decrease in demand for retail gold in China. In India, a 34% decrease in demand was recorded; a result of the lockdown that was implemented. Despite this though, the price of gold observes an opposite trend, increasing sharply as its demand falls. At $1,772 per roughly 29 grams, the 8% increase culminates an eight-year high following the last three months and a 31% increase higher from the second quarter of 2019.
Regardless of gold’s volatility and vulnerability to liquidation during this period, gold prices opened higher on August 3 as speculation over economic fallout rising from coronavirus infections being on the rise boosted the demand for this valuable metal among others, driving inflows into safe haven assets by 30% thus far.
The prevailing macroeconomic conditions are reassuring for Kingman Minerals (TSX.V: KGS) and other entities operating in the sector. This reassurance is brought on by many factors, including concerns over global economic recession, rising inflationary expectations as well as low and negative interest rates ensuring that gold carries on with its upward trend.
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