Ukraine war, inflation drives Q1 jump in gold demand, WGC says

© Reuters. FILE PHOTO: Gold bars and coins are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany, August 14, 2019. REUTERS/Michael Dalder

By Eric Onstad

LONDON (Reuters) - Global demand for gold surged 34% year-on-year in the first quarter to the highest in over three years, driven by investors worried about Russia's invasion of Ukraine and rising inflation, the World Gold Council (WGC) said in a report on Thursday.

Strong demand for gold-based exchange traded funds (ETFs) helped to boost total gold demand to 1,234 tonnes in the first three months of 2022, the highest since the fourth quarter of 2018, it added.

The first quarter total was also above the five-year average of 1,039 tonnes.

"Gold ETFs had their strongest quarterly inflows since Q3 2020, fuelled by safe-haven demand," the WGC said.

GRAPHIC: Gold Demand Increases in Q1 2022 on strong EFT flows https://fingfx.thomsonreuters.com/gfx/mkt/dwvkryklqpm/Q1%202022%20Gold%20Demand%20WGC.png

Spot gold prices rallied to $2,069.89 an ounce last month, a whisker away from a record peak touched in 2020, on mounting fears about the Russia-Ukraine crisis and spiking inflation.

Gold ended the first quarter 6% higher, but slipped to a two-month low on Wednesday as the dollar rallied on expectations of aggressive U.S. monetary policy tightening. [GOL/]

The WGC said purchases of small bars and coins in the first quarter slid by 20%, hit by renewed lockdowns in China and historically high prices in Turkey.

Jewellery buying was lacklustre, easing by 7% on softer demand in major consumers India and China.

Central banks added 84 tonnes to official gold reserves, which was down 29% compared to the same period last year, but more than double the level of the previous quarter.

The outlook was uncertain since it was unclear when the Ukraine conflict would see a resolution, but the WGC said it expected gold investment to keep rising during the rest of the 2022 while consumers may shy away.

"Consumer demand is likely to be pressured by rising prices and widespread economic slowdown," it said.

GOLD DEMAND (T)*

Q1 2022 Q4 Q1 y-o-y

2021 2021 %

change

Jewellery fabrication 517.8 719.2 538.7 -4%

- Jewellery 474.0 716.8 509.3 -7%

consumption

- Jewellery inventory 43.7 2.4 29.4 49%

Technology 81.7 85.9 81.0 1%

- Electronics 67.0 70.6 66.2 1%

- Other Industrial 12.0 12.5 11.9 1%

- Dentistry 2.7 2.7 2.9 -7%

Investment 550.7 304.4 181.8 203%

- Bar and coin 281.9 322.3 351.8 -20%

- ETFs & similar 268.8 -17.9 -170.0 -

Central banks 83.8 41.2 117.5 -29%

GOLD DEMAND 1234.0 1150.8 919.1 34%

OTC and other -77.4 84.7 189.7 -

TOTAL DEMAND 1156.6 1235.5 1108.8 4%

* Source: World Gold Council, Gold Demand Trends Q1 2022