The inflows into the gold exchange-traded fund products are indicative of the strength of gold’s “safe haven” appeal.

It also reflects the relative ease of accessing such securitised products in a global and liquid market, gold industry market development organisation the World Gold Council (WGC) market relations head John Mulligan tells Mining Weekly.

“We saw the strengthening of small bar and coin demand, particularly in Europe, directly before the lockdowns, and this demand is likely to have built up further since. But it will require greater relaxation of travel and access restrictions, and concurrent normalisation of supply chain logistics, before this demand is likely to be fully evident.”

Meanwhile, consumer demand for gold has been quite affected by the Covid-19 lockdowns globally and demand will probably continue to struggle until consumer confidence returns, along with better prospects for local incomes and discretionary spending power.

“Given the scale of social and economic impacts and uncertainties in the wake of the pandemic, we are unlikely to return to any previous ‘normality’ any time soon, even when the lockdowns are lifted,” he notes.

Mulligan highlights that the unprecedented fiscal and monetary stimulus packages, emergency tax relief programmes and rising unemployment levels may compound existing economic vulnerabilities.

He stresses the need for market insurance and a stabilising asset, such as gold, which functions as a resilient store of value, should be stronger than ever. This need, and consequent demand for gold, is likely to persist even after people are able to move and interact far more freely than has been the case in recent months.

“Demand for gold from central banks remained very strong in the first quarter of 2020, with 145 t of net purchases. Although this was a little lower than the near-record levels of the first quarter of 2019, it remains well above the longer-term quarterly average,” he enthuses.

Therefore, the WGC is confident that central banks, as they continue to seek out robust, liquid and diversified assets, will remain buyers of gold for the foreseeable future, although perhaps not always at the recent elevated levels.

Outlook

Mulligan highlights that mined production is likely to dip in 2020, mainly as a result of Covid-19-related shutdowns.

Thus, it will be easier to quantify the scale of this drop as global markets enter the second half of the year, although it is currently not expected to be dramatic, unless new restrictions are imposed.

Given the relatively robust condition of the industry, he adds that production is expected to be relatively stable, with only gradual and marginal falls in global production.

However, over the longer term, the growth capital expenditure constraints of the past five years, as well as the challenge of translating exploration budgets into discoveries, are likely to take their toll.

“The speed, scale and severity of post- pandemic impacts make identifying likely economic scenarios, and the likely path to stability and recovery, extremely difficult, and stimulating demand-led growth is not going to be simple.”

Meanwhile, policy decisions to defend economies against rapid and corrosive contraction will likely lead to very limited yield opportunities and even lower return expectations amid greater uncertainty and potential heightened volatility, he explains.

Most of these factors, he points out, support greater gold investment flows.

As such, the WGC expects that, for the remainder of 2020, the momentum behind the trend to seek out gold as a balancing asset and robust store of value will be the paramount force driving demand.

The gold market is increasingly being shaped by the heightened priorities – not least being given by investors and regulators – of responsible and sustainable business strategies and practices, he adds.

“This represents a substantial opportunity whereby, if the gold supply chain, from mine to market, embraces opportunities to demonstrate its positive social and economic impacts; its environmental, social and governance credentials; and its commitment to a future low-carbon economy, it might attract a far broader set of investors while building further trust among existing stakeholders.”

Mulligan concludes that gold mining may also be radically transformed by embracing and embedding new technologies, which might make it cleaner, safer and more efficient.