"The first quarter was a very good example of how the dual nature of gold works: gold will respond in the short term to investment factors but over longer periods you see the effect that other sides of the market have on performance. It was interesting to see ETF outflows mitigated by a strong response from other sectors," he said.
Artigas said while ETFs saw US$9.5 billion of outflows (177.9 tonnes) in the March quarter on the back of profit taking and tactical repositioning by investors, this was against a backdrop of $50 billion in inflows in 2020. "The increase in interest rates and the strengthening US dollar created headwinds for gold. As risk-on assets gain momentum as concerns about COVID-19 change, uncertainty and expectations of risk start to diminish and reduces the need for investors to have risk-hedging risk assets like gold," he said.
Financial stimulus by governments around the world in response to the economic consequences of the COVID-19 pandemic are expected to produce inflationary pressures, which will benefit the gold price going forward, although high interest rates are currently counteracting inflation concerns.
"When there are concerns of high inflation investors use gold as an inflation hedge. Gold tends to lag expectations of inflation for the first six to nine months of the inflationary cycle and then catch up," said Artigas.
Meanwhile, mine supply continues to trend upwards at a stable and steady rate and is expected to do so for another couple of years before levelling off. Despite this, overall supply fell during the quarter as recycling, which can account for 25-35% of annual supply, fell both because of COVID-19 restrictions on movement and a more upbeat economic outlook.
"COVID-19 lockdowns meant people didn't go out to sell gold, plus there are other ways for people to utilise their gold, such as taking gold-backed loans. People didn't have to sell their gold to obtain income as they could use it as collateral. People also responded to more upbeat sentiment on the economic recovery so didn't need to use their savings in gold. The fall in the gold price was also a factor," said Artigas.