Continued exchange-traded fund (ETF) outflows drove gold demand, excluding over-the-counter (OTC) purchases, down by 5% year-on-year in the first quarter of this year to 1 102 t.

However, including sizeable OTC purchases by investors, total gold demand increased by 3% year-on-year to 1 238 t, which the World Gold Council (WGC) says is the strongest first quarter for gold demand since 2016.

Gold demand was also driven by strong central bank gold buying in the first quarter, with central banks having added 290 t to official holdings.

Bar and coin demand also increased by 3% year-on-year to 312 t.

The WGC explains that global gold ETF holdings decreased by 114 t, particularly in Europe and North America, which was somewhat offset by inflows to ETFs in Asia.

Global jewellery consumption was 2% lower year-on-year at 479 t in the quarter under review, while jewellery fabrication grew by 1% year-on-year to 535 t, resulting in inventory build of 56 t during the quarter.

The WGC says technology demand for gold increased by 10% year-on-year as growing use of artificial intelligence bolsters demand for gold in the electronics sector.

On the supply side, gold mine production increased by 4% year-on-year to 893 t – marking a record for a first quarter in the WGC’s data. This was likely in response to the higher London Bullion Market Association gold price, which averaged $2 070/oz in the quarter.

The average price of gold in the first quarter was 10% higher than that of the first quarter of last year and 5% higher than the fourth quarter of last year. 

WGC says gold recyclers also responded to higher prices, with output having increased by 12% year-on-year to 351 t – the highest quarter of recycling supply since the third quarter of 2020 when recycled gold volumes shot up alongside gold prices in response to the Covid-19 pandemic.

The WGC says Western and Eastern investors are exhibiting different behaviour, with Western buying remaining robust and with healthy levels of profitmaking, while the Eastern markets have seen strong buying.

The year is set to produce a much stronger return for gold than the WGC initially expected, supported by continued central bank buying and retail investment.

“The stellar run up in price in recent weeks will likely prompt a rise in recycling supply and a fall in jewellery demand, but upside potential remains in the gold ETF space,” it points out.