Tracking global gold demand trends

The demand for gold has remained strong despite record prices in the first quarter of the year, with total gold demand increasing by 3 per cent year-on-year to 1,238 tonnes, making it the strongest first quarter since 2016, according to the Demand Trends report from the World Gold Council. In a recent interview on CNBC Africa, Joe Cavatoni, Market Strategist at the World Gold Council, discussed the factors driving this momentum and ongoing demand for gold even in the face of elevated prices. Cavatoni highlighted that while some speculated prices have been pushed higher, the fundamental reason behind the justified prices is that demand is outpacing supply significantly. Central bank buying has been a dominant driver in the first quarter, particularly among central banks in emerging markets. Cavatoni explained that these central banks have been net buyers of gold for the past 14 years, indicating a trend rather than a recent phenomenon. The motivations for central banks to purchase gold lie in diversifying their portfolios to mitigate risks related to dollar exposure, euro exposure, and U.S. credit exposure. Additionally, gold serves as a hedge against inflation and provides a liquid investment option, trading over $165 billion daily, which further strengthens its appeal to central banks. Geopolitical risks, election risks, and sanction risks are key considerations for central banks, prompting them to continue their gold purchases as a form of insurance. The rally in the gold price this year, driven by geopolitical tensions and economic uncertainties, has led to strong support for gold remaining in investors' portfolios. While speculators may contribute to aggressive price movements, the intrinsic value of gold as a safe haven asset remains solid. Cavatoni emphasized the importance of carefully timing entry points into the market and suggested that gold may be entering a new price level, supported by ongoing demand from central banks, investors, and even jewelry buyers. In terms of supply, Cavatoni clarified that while supply increases in the first quarter were limited, mine supply reached record levels of about 893 tons. The current pricing environment and forecasted higher prices are expected to incentivize mining companies to ramp up production, particularly in markets like Canada. Despite increased production costs due to factors like energy and fuel costs, the higher gold prices will likely make production more feasible and profitable for mining companies in the coming years. When discussing the possibility of M&A in the gold sector, Cavatoni redirected the conversation back to gold, emphasizing that the World Gold Council primarily focuses on the gold market and its dynamics. However, he acknowledged the ongoing consolidation and M&A activities in the mining sector, which could support increased supply levels necessary to sustain commodity prices. Lastly, Cavatoni delved into the investment market for gold, highlighting the significance of over-the-counter buying and exchange-traded funds (ETFs). While ETFs have been popular investment vehicles in Western markets, especially driven by expectations around U.S. rates and dollar strength, over-the-counter purchases, particularly in Asia, also play a crucial role in the gold market. Investors are closely monitoring U.S. rate movements and the dollar's performance to gauge the opportune time to allocate more gold to their portfolios. Overall, the interview with Joe Cavatoni shed light on the robust demand for gold, the strategic motivations behind central bank purchases, the impact of geopolitical risks on gold prices, the prospects for increased supply, and the dynamics of gold investments through over-the-counter transactions and ETFs.