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Central Banks Plough Money into Gold in Response to Economic Uncertainty

Tuesday, February 19, 2019

Demand from global central banks for gold as a diversifier led to a 4 per cent increase in global gold demand in 2018. This is according to the latest Gold Demand Trends report published by the World Gold Council.

The increase was driven by the 651.5 tonnes of gold added to central bank reserves over the period, which was a staggering 74 per cent increase on the amount they purchased in 2017.

The demand for gold as an investment often increases around times of economic uncertainty and the number of investors wanting to buy gold coins and gold bars from retailers also increased over the year. In fact, demand for gold bars and coins from retailers was up 4 per cent in 2018 to a total of 1,090.2 tonnes.

Industry insights

The World Gold Council’s Head of Market Intelligence, Alistair Hewitt, said the growth in gold demand was symptomatic of the geo-political landscape. He stated: “Gold demand rose in 2018 and, although the US dollar gold price was down 1 per cent over the year, it outperformed many other financial assets.

He also commented that worries about an economic slowdown, ongoing geo-political tensions and financial market volatility have contributed to this trend from central banks around the world.

As well as growth in demand from those looking to buy gold bars and gold coins as a straight investment, the demand for gold jewellery continued steadily, falling by just 1 tonne from 2017. However, there was growth in gold jewellery demand in China, Russia and the US, where it grew by 3 per cent, 9 per cent and 4 per cent respectively.

How did this affect the value of gold?

Although there was an overall 67 per cent downturn in the amount of gold purchased by exchange traded funds (ETFs) in Europe; in the final quarter of the year, everything changed.

As signs of an end to economic growth started to show through, alongside increasing volatility within the stock market, inflows increased significantly to 112.4 tonnes, compared with just 32.5 tonnes during the final quarter the year before.

Anyone considering whether to buy gold bars or coins as an investment would do well to keep a close eye on the gold price charts and future developments at this time. Mr Hewitt of the World Gold Council added: “I don’t see any of the risks that investors and central banks are worried about fading anytime soon, and I expect gold to remain an attractive hedge in 2019.”

Interesting words indeed from one of the world’s leading gold authorities. Investors, collectors and anyone interested in the precious metal would be wise to pay attention to gold this year – even if it’s just to see how this unique asset performs in 2019 amidst a great deal of geo-political change.