Market Overview

Central Banks Drove Gold Demand In 2018

Central Banks Drove Gold Demand In 2018

Gold and the related exchange traded funds were challenged last year by the strong dollar and rising U.S. interest rates, but that did not prevent some buyers from stepping up bullion purchases.

New data from the World Gold Council shows global gold demand increased by 4 percent last year.

What Happened

“Gold demand in 2018 reached 4,345.1t, up from 4,159.9t in 2017 and in line with the five-year average of 4,347.5t,” according to the WGC.

Last year, investors pulled $1.79 billion from the SPDR Gold Shares (NYSE: GLD), the world's largest gold-backed ETF, but investors did allocate capital to lower-cost gold ETFs. For example, the iShares Gold Trust (NYSE: IAU) saw $1.59 billion worth of inflows last year.

The GraniteShares Gold Trust (NYSE: BAR), one of the newest and cheapest gold ETFs, saw 2018 inflows of just over $310 million.

Why It's Important

While U.S. ETF purchases of gold were mixed throughout 2018, global central banks supported bullion demand in significant fashion.

“A multi-decade high in central bank buying (651.5t) drove growth,” said the WGC. “Demand was bumped up in Q4 by 112.4t of ETF inflows, but annual inflows into these products (of 68.9t) were 67% lower than 2017.”

Central bank gold purchases were the second-highest on record last year as central banks in Russia and Turkey, among others, embraced the yellow metal.

“Net purchases jumped to their highest since the end of US dollar convertibility into gold in 1971, as a greater pool of central banks turned to gold as a diversifier,” according to the WGC.

What's Next

With dollar strength moderating and expectations in place that the Federal Reserve wont' raise interest rates this year, each of the aforementioned U.S.-listed gold ETFs have added new assets, led by $1.51 billion of inflows to GLD.

Last year, “coin demand surged to reach a five-year high of 236.4t, the second highest on record. Demand for gold bars held steady at 781.6t, the fifth year in succession of holding in a firm 780-800t range,” according to the WGC.

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