The Gold Market report for Q1, 2021

The first quarter of 2021 has been good for gold. In the Q1 of 2021, the demand for gold was 815.7 tons, which is 4% higher than Q4 of 2020 (783.4 tons). However, if one compares Q1 of 2021 to Q1 of 2020, gold demand is 23% lower. This is only natural since the first quarter of last year, the global pandemic scared the world. Investors rushed to invest in gold as they saw gold prices increase and protect their investments from a potential financial crisis.

Gold performance in Q1

(Picture 1. Gold outperformed major assets in 2020 (1) )

Gold outperformed major assets in 2020. In comparison with 10 other assets, Gold „won“second place in terms of Annual returns. Nasdaq stock performed very well in terms of annual return, increasing more than 40%. While Nasdaq gained 40%, it had an over 20% maximum drawdown, making this asset much riskier than gold. Gold price made over 20% in annual returns while the drawback was only a few percentages.

(Picture 2. XAU/currency data (1) )

2020 was an amazing year for gold investors. Gold price reached an all-time high in all major currencies, moving past $2000. The highest registered gold price was at $2,067.15 per ounce. In Picture 2. XAU/currency data shows that XAU/USD gained 24.6%, followed by XAU/EUR with a 14.3% increase. Dollar returns were high because the dollar price has lost a lot of its value due to the enormous amount of Central Bank printing.

Inflation

Gold has historically performed well amid equity market pullbacks as well as high inflation. In years when inflation was higher than 3%, gold’s price increased 15% on average. Notably, too, research by Oxford Economics shows that gold should do well in periods of deflation. Such periods are typically characterized by low interest rates and high financial stress, all of which tend to foster demand for gold. (1)

Investments in physical gold bars and coins

(Picture 3. Physical gold demand (1) )

The first quarter of 2021 was undoubtedly great. Physical gold demand has not been this high since Q4,2016. Gold investments in a physical form attract the attention of a wider and wider audience. New investors who fear the loss of value of fiat currencies, investors who are afraid of stock- and cryptocurrency bubble, are moving investments to gold.

Major physical gold investments by countries in Q1, 2021

• China – 86 tons. This is 133% increase year-on-year and 21% more than in Q1, 2020.
• India – 37.5 tons. Up by 34% year-on-year.

For both China and India, the increase in demand for physical investment gold went hand in hand with the growing interest in gold jewelry, improved economic indicators, and lower prices in gold in their local currency.

• Turkey – 44.3 tons. Investors took advantage of lower gold prices and increased the amount of gold in their portfolios in response to expectations of internal political turmoil and the consequences of the weakening of the local currency. These assumptions turned out to be well-founded – the sudden decision to dismiss the president of the central bank of Turkey in mid-March caused a sharp decline in the lira and a rebound in the domestic gold price. (2)
• USA – 26.3 tonnes. Increased by 77% year-on-year. It was the strongest quarter in the US since Q2, 2016.
• Europe – 65 tons. The five-year quarterly average was exceeded by over 35%. Demand was 11% lower than Q1 2020, mostly because of Brexit turmoil and pandemic scares.

Major physical gold investments by Central Banks in Q1, 2021

• Hungary – 63 tons. National Bank of Hungary had tripled its gold holdings, and its bank reserves are now 14% of gold which is 94.5 tons.
• Uzbekistan – 23.3 tons.
• India – 18.7 tons. India has regularly bought gold since the end of 2017, but in Q1, 2021, it significantly increased the purchasing amounts, compared to its quarterly average (since 2018), 9.9 tons. Currently, the treasury of the Reserve Bank of India is holding 695.3 tons of gold which is 7% of its total reserves.
• Kazakhstan – 8 tons.

Gold price overview of Q1, 2021

In the first week of January 2021, gold market bulls tried to push the gold price higher, touching the $1960 area, but failed – the week closed near $1850. Gold price dropped the next 9-weeks consecutively, reaching the major support area and 11-months low at the end of March. Since then, the major support area around $1670 – $1700 has held strong, and from the end of March 2021 gold price has moved up 7-weeks straight and currently trading at $1881 (23.05.2021).

Gold is seeing some resistance in the area near $1900, and the price will likely correct before trying to reach new highs again. A potential price drop to support area $1755 – $1785 is likely.

Invest in gold: 

• 100 gram gold bars mixed brands
• 1 oz Austrian Philharmonic Gold Coin
• 1 oz Valcambi Suisse Gold Bars

(1)    https://www.gold.org/goldhub/research/outlook-2021

(2)    https://tavex.pl/rynek-zlota-na-swiecie-raport-za-1-kwartal-2021/

(3)    https://www.fxstreet.com/analysis/gold-demand-trend-q1-2021-202105030906

Disclaimer: This article is for informational purposes only and is not intended as an investment analysis or recommendation to sell or buy commodities. Tavex is not responsible for any decisions made based on this information. Investing is associated with opportunities and risks, and the market value of commodities can both increase and decrease. Past or future yields on the commodities and financial ratios shown above do not represent a promise or an indication of future earnings.