In the first three months of this year, an ounce of yellow precious metal fell by almost $300. Gold quotes decreased by 13%, from 1943 to $1691. This is the most depressing quarterly indicator since 2016. However, there is a rapid increase in demand for gold investment coins. The growth in jewelry sales was recorded in India and China. Injecting billions of dollars into the global economy is expected to lead to a significant increase in inflation and an increase in gold quotes. At the beginning of the year, precious metal quotes decreased due to higher yields of US Treasury bonds and a strengthening of the dollar. According to analysts of the World Gold Council, the stabilization of interest rates, taking into account the growth of the money supply and increased inflation, will lead to an increase in demand for protective assets from institutional investors in the medium and long term. Let us dwell on the important events of the 1st quarter in the yellow metal market.
Position on the paper gold market
At the moment, there is an opinion among individual and institutional investors that the global economy will be actively recovering amid the continuation of the campaign for mass vaccination of the population. This will also be facilitated by the implementation by the Governments of developed countries of financial programmes aimed at supporting national economies. Against this background, risky assets, including cryptocurrencies, have risen significantly in price. Western institutional investors began to fill their portfolios with stocks and bonds instead of paper gold (futures, shares of exchange-traded funds). This affected the gold ETF fund market: in March alone, the volume of shares decreased by 107.5 tons. However, the low price of yellow metal attracted the attention of individual investors and ordinary citizens, who replenished personal reserves. The increase in demand for physical precious metal is due to expectations of rising inflation and financial instability. Central banks in some countries bought gold in the first quarter, replenishing reserves. Hungary became the leader, increasing the gold reserve by 60 tons.
Demand for gold jewelry
In the first quarter of this year, jewelry became especially popular in India and China. The celebration of the Chinese New Year increased sales of gold products in the Middle Kingdom by 161% year on year. Tangible capital inflows were recorded by Chinese ETF funds and shares secured by physical precious metal. At the end of March, the growth of gold reserves at funds amounted to 5 tons, reaching a new record value of 72.4 tons. In India, the wedding season began, during which mass purchases of jewelry are observed. Stable sales growth is due, among other things, to a decrease in customs duties on gold imports and an increase in the Indian rupee.
Increasing popularity of gold investment coins
Gold investment coins were especially popular in the first quarter of 2021. The US Mint sold 401.5 thousand ounces of the American Eagle. This is the third largest coin sales indicator in the history of its existence. The Perth Mint sold ingots and coins in the amount of 124.1 thousand ounces in February alone.
Short-term forecast for the gold market
The gradual decline in gold quotes was suspended due to increased demand for physical precious metals from individual investors and central banks. The soft monetary policy of the US Federal Reserve creates additional favorable conditions for the gold market. If inflation increases accelerate, institutional investors will begin to buy protective assets again. The catalyst for sales of physical gold can also be the cessation of quarantine in some countries. The volume of sales of futures and purchases of shares of gold ETF funds should increase. Under such conditions, quotes of yellow metal will begin to grow.