Covid-19 takes a toll on first-half gold demand, production
Global gold authority, the World Gold Council (WGC), reports that gold demand fell by 6% year-on-year to 2 076 t in the first half of this year.
The most prevalent impact on demand and production was the international spread of the Covid-19 pandemic, severely curtailing consumer demand while providing support for investment, the WGC notes in its half-year review.
In terms of supply, the WGC report states that total supply of gold was also impacted on by the Covid-19 pandemic, falling 6% year-on-year to 2 192 t as both mine production and recycling were affected by lockdown restrictions.
Mine production fell 5% year-on-year to 1 604 t, its lowest first-half level since 2014, while recycling experienced a similar decline to 590 t.
However, the council also reports that the global response to the pandemic by central banks and governments, in the form of rate cuts and massive liquidity injections, fuelled record flows of 734 t into gold-backed exchange-traded funds (ETFs).
These flows helped lift the gold price, which gained 17% in dollar terms over the first half, hitting record highs in many other currencies. This led to the gold price reaching record highs in numerous currencies, including the euro, pound sterling, rupee and renminbi.
In addition, WGC market intelligence manager Krishan Gopaul says gold mine supply has also “faired fairly well” and, although the mining industry experienced a slump in production, the declines over the first half have been “modest in contrast to the scale of the [overall Covid-19] disruption we have seen”.
Total gold bar and coin investment weakened sharply in the second quarter, leading to a 17% decline in first-half demand to 396.7 t. This sector of investment saw a clear east/west divergence in investor behaviour, with most markets across Asia and the Middle East seeing a slowdown in investment, while Western investors increased demand.
Further, first-half jewellery demand slumped by 46% year-on-year to 572 t as markets remained in lockdown and consumers were deterred by the high price and a squeeze on disposable income. The WGC notes that the impact of Covid-19 was unsparing, with second quarter demand falling to an unprecedented 251 t.
Similar factors were behind a 13% fall in gold used in technology to 140 t in the first half of the year, as end-user demand for electronics collapsed.
Central bank buying slowed again in the second quarter, although the comparison is with a record second quarter performance of 2019. The sector added a net 233 t of gold in the first half. The WGC notes that central bank buying has, however, become more concentrated, with fewer banks adding to reserves thus far in 2020.
Gopaul tells Mining Weekly that the global gold market is playing out a “classic self-balancing” act where one sector of the gold market might be performing poorly, but another sector is compensating and performing well.
Meanwhile, in terms of South Africa’s gold production, most mines were forced to close under Alert Level 5 lockdown restrictions, leading to a second-quarter decline of 59%.
“What we saw was, as a result of the phased lockdowns, that full production was only able to begin very late in the first half, in about the beginning of June.”
However, South African mines have since gone back into production, albeit at lower workforce numbers. In this regard, Gopaul points out that underground mines in South Africa have also been affected more than openpit operations because of the more stringent protocols and owing to the number of employees underground at any one time being restricted.
In addition to this, he highlights that underground mines have also been impacted by the fact that its miners require extensive screening before going underground, thereby increasing the time it takes to get underground and decreasing the work hours as a result.
The WGC points out that, while South Africa was going into lockdown, China was gradually emerging from its lockdown, and by the end of the first quarter had resumed some gold mining operations.
Nonetheless, Chinese lockdowns resulted in that country’s production declining 9% for the first half of this year.
As with South Africa, other major gold producing countries, including Peru and Mexico, were severely impacted by Covid-19; however, Gopaul points out that Russia and Finland’s largest mine, Kitilla managed to increase its production in the second quarter by 15%. Russia’s growth was also impacted by the Natalka and Bystrinsky mines coming on line, while Finland’s Kitilla increased its output by 54%, compared with the second quarter of 2019.
Further, he says that several new gold projects have also recently come on stream and are ramping up. This, coupled with a few instances of increased production from some European producers and also growth in West Africa (Burkina Faso, in particular where production rose by 10% in the second quarter), are positive signs of recovery.