Driven by geopolitical and economic uncertainty, global gold demand remains firm in the first quarter of the year, reaching its highest level in eight years on a year-on-year basis, according to the latest WGC report.

Global gold demand (including OTC purchases) during the first quarter of the year was up 3% year-on-year to 1,238 tonnes, marking the strongest first quarter since 2016, the World Gold Council (WGC) has announced in its latest Global Demand Trends report.

The strong performance in gold demand comes as persistent central bank buying on the back of geopolitical and economic uncertainty, investment in the OTC market, and increased demand from Asian buyers have driven the gold price in the first quarter to a record average of €1,934 an ounce.

As a reminder, there are two main ways to trade gold in the wholesale market: the over-the-counter (OTC) market and the exchange market. OTC markets are characterised by the fact that market participants trade directly with each other.

Excluding the OTC market, gold demand fell by 5% to 1,102 tonnes in the first quarter, as the jewellery market declined by 2% – although still resilient in the face of record prices – and physical gold-backed exchange-traded funds (ETFs) declined by 114 tonnes. In particular, Europe and North America recorded quarterly outflows, slightly offset by inflows into listed products in Asia.

Increased central bank purchases

Central banks continue to hoard gold at a frenetic pace. During the first quarter, they added 290 tonnes to their reserves, up 1% year-on-year and 69% more than the quarterly average of the last five years.

This is the strongest start to the year in the WGC’s historical series, which dates back to 2000. This increase in gold purchases is led by the central banks of China and India. The Asian giant generated most of the demand. Both Chinese consumers and their central bank are buying gold with renewed investor interest due to the weakening of the local currency and the poor performance of domestic equity markets.

Louise Street, Markets Analyst at the World Gold Council, noted, “We are witnessing shifting behaviour trends from Eastern and Western investors. Typically, investors in Eastern markets are more responsive to the price, waiting for a dip to buy, whereas Western investors have historically been attracted to a rising price, tending to buy into the rally. In Q1, we saw those roles reversed, with investment demand in markets such as China and India growing considerably as the gold price surged.”

However, the WGC expects central banks to slow their purchases slightly in 2024 compared to the previous year. Krishan Gopaul, senior analyst at the WGC, told Reuters, “While central bank buying momentum continues, we are taking a cautious view going forward, waiting to see if recent gold price growth prompts some central banks to slow purchases or some to sell some of their holdings.”

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