Every quarter, an always interesting report from the World Gold Council captures shifts in the demand for gold. The first quarter of report of 2019, released a few days ago, contains some fascinating nuggets of information.
Of the speculations one could guess at, one that should be on everyone’s mind is this: What is going on in the minds of central bankers? Figure 1 has the reason for the question.
Contained in Figure 1 is the World Gold Council’s estimate of the change in demand for gold from the first quarter of 2018 to the first quarter of 2019. The far-right column has the percentage change for the six detailed categories of demand.
Notice anything peculiar?
The largest buyer of gold – by far – are central banks and other institutions. In the first quarter of 2018, central banks and other institutions held 86.7 million tonnes of gold. Fast forward to the first quarter of 2019, and the picture is almost doubled. Gold demand is up 68% to 145.5 million tonnes.
What is it central banks know that we don’t know?
There are really two areas that boosted overall growth up 7% in the first quarter of 2019. The first is central bankers and other institutions. The second is exchange-traded funds and similar products. Investment by ETFs and similar products expanded by 49% from 27.1 million tonnes in the first quarter of 2018 to 40.3 million tonnes in the first quarter of 2019.
Why Would Central Banks Be Stockpiling Gold?
Why are central bankers stockpiling gold? Among the many reasons that central bankers may be accumulating so much gold two seem most plausible: (1) central banks are concerned about the state of the global economy; and (2) central banks are concerned about potential geopolitical tension.
These two reasons make perfect sense. The first quarter of 2019 was weak globally. One might call the first quarter the third “mini-recession” of this incredibly long expansion. There is also considerable tension in the European Union regarding Brexit and the overall state of the European economy (i.e. Germany is in a recession, and other larger economies are not in much better shape).
Where’s Demand Stemming From?
With demand from central banks being driven by the jitters, what the geographic breakdown of demand look like? Here’s a look.
Curiously, the country with the largest percentage increase in demand for gold bars and coin is none other than the United Kingdom. Compared to the first quarter of 2018, gold demand in the first quarter of 2019 in the U.K. grew a whopping 58%. Brexit must be on a few individuals’ minds.
The next largest purchaser of gold was the United States at 38% growth, followed by Canada at 37%, and Turkey at 25%.
On the declining front, Mexico saw the largest drop in demand, down 56% over the prior year.
Overall, there’s increasing demand for gold across the world, including from central banks. Jitteriness may be driving central bank demand, akin to what may be driving some of the individual demand.