ETPs and central banks drive gold demand in Q1

Gold ETPs

The increasing popularity of gold-backed exchange traded products (ETPs) helped drive demand for the precious metal in Q1, as weak sentiment in Q4 last year spilled into the new year.

According to the World Gold Council (WGC), gold-backed ETPs saw global inflows of 40.3 tonnes or $1.9bn in Q1, a 49% year-on-year increase.

When looking at a monthly basis, January saw the strongest demand of the quarter with inflows of 71.4t, while February offset these positive flows with 32.9t outflows. March was broadly neutral with 1.8t inflows.

Gold-backed US-listed ETPs grew by 2% in Q1, the equivalent of $1.1bn inflows, helped by the US-China trade tensions and the US government shutdown in January.

Across the pond in Europe, gold-backed European-listed ETPs saw inflows of 20.1t, hitting record AUM levels beyond 1,200t.

Alistair Hewitt, head of market intelligence at the WGC, said the Federal Reserve’s decision to adopt a more neutral stance at the January FOMC meeting helped drive the flows.

Last December, markets were pricing in four Fed hikes in 2019 however, a shift in sentiment means markets are anticipating rates to stay unchanged for the remainder of the year. A dovish central bank is seen as a typically supportive environment for gold.

“This more dovish outlook should underpin regional demand for the rest of 2019, although continued strength in the stock market would be a headwind,” Hewitt added.

“This quarter’s figures suggest that the factors that are driving the investment in European ETPs – negative yields on Eurozone sovereign debt, geopolitical uncertainty and financial market volatility – will continue to underpin investment demand.”

Meanwhile, central banks bought 145.5t of gold in Q1, up 68% year-on-year, the strongest start to a year since 2013. Russia was once again the largest buyer, adding 55.3t in Q1, as it continues its ‘de-dollarisation’ process by reducing US Treasury holdings.

At the end of Q1, Sergey Shvetsov, deputy head of Russia’s central bank, said it is necessary to “increase forex and gold reserves even more” in the face of “persisting sanction risks”.

Last week, two gold ETPs were among the products which saw the most weekly outflows, in a sign investors are becoming more bullish about the outlook for the global economy for the rest of the year.

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