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Physical gold investment was up by 5% year-on-year in the first quarter.

Investors bought 302 tons of gold bars and gold coins in Q1 with a value of $18.4 billion. This was 14% above the 5-year average, according to the World Gold Council.

The surge in physical gold investment came even as gold prices reached record levels in many currencies.

According to the World Gold Council, persistently high inflation, geopolitical risks, and concern over contagion in the banking crisis fueled demand for gold.

Investors preferred gold in the form of coins in Q1. Demand for gold coins came in at 96.5 tons, a 14% annual increase. Bar demand was 181.9 tons, a 1% decline year-on-year.

Even with the jump in demand year-on-year, first-quarter gold buying did not match Q4’s record high. Higher gold prices encouraged some profit-taking and there were declines in demand in some markets, particularly India and Europe.
 

Physical Gold Demand By Region

The banking failure in March lit a fuse under US gold bar and gold coin investors. US bar and coin demand came in at 32 tons. It was the fourth-strongest quarter in the World Gold Council’s data series. Gold bar and coin demand jumped 40% from the fourth quarter of ’22 and charted a  4% year-on-year increase.

The US Mint reported rocketing coin sales of 288,000 ounces in March. It was the biggest monthly total since October 1998, when the Y2K safe-haven rush for gold was in full swing.

Q1 bar and coin investment also soared in China during the first quarter. Demand totaled 66 tons. That was a 34% jump year-on-year and a 7% rise quarter-on-quarter.

According to the World Gold Council, “Chinese New Year generated robust demand for gold investment, particularly given the local gold price strength, which outperformed relative to other domestic assets including stocks, bonds, and commodities.”

The WGC also said gold buying by the Chinese central bank also drove local interest in the yellow metal.

China ranks as the largest gold market in the world.

In contrast, demand for physical gold in India came in at 34 tons, a 17% year-on-year decline. Record high and volatile local gold prices muted demand. According to the World Gold Council, “The speed and scale of the rise in the local gold price deterred fresh buying and instead encouraged profit-taking for many. Furthermore, the low margins on gold investment products, relative to jewelry, meant that retailers concentrated their promotional efforts on the latter.”

Demand was also muted in Europe. The 38 tons of physical gold purchased in Europe during Q1 was less than half the total recorded in q1 2022 and the lowest quarterly total since the beginning of the pandemic. A big drop in German demand drove overall European demand lower. According to the World Gold Council, “The main trigger for the collapse in investment appears to have been the shift back to positive real rates for the first time in nine years, due to easing inflation and higher nominal rates. The rising euro gold price in January also reportedly encouraged profit-taking, with the net result that demand was more or less zero during the month.”

All markets across the Middle East recorded growth in Q1 bar and coin demand. Regional investment hit 29 tons – a quarterly total that has been exceeded on only three previous occasions.

Also notable is that bar and coin investment in Turkey reached phenomenal levels in the first quarter, breaching 50 tons for the first time on record. Demand increased fivefold year-on-year and was 32% higher than in Q4.
 

ETFs

While investors rushed into physical gold, gold ETFs continued to see outflows in the first quarter. Globally, 29 tons of gold flowed out of gold-backed ETFs.

But there were signs of a reversal in the trend. For the first time in 10 months, gold flowed into ETFs in March with global gold ETFs recording net inflows of 32 tons.

Funds listed in North America saw gold inflows of 10 tons in Q1. European ETFs charted outflows of 40 tons. Asian funds reported modest outflows of less than 1 ton.

ETFs are backed by physical gold held by the issuer and are traded on the market like stocks. They allow investors to play gold without having to buy full ounces of gold at a spot price. Since their purchase is just a number in a computer, they can trade their investment into another stock or cash pretty much whenever they want, even multiple times on the same day. Many speculative investors appreciate this liquidity.

There are good reasons to invest in ETFs, but they aren’t a substitute for owning physical metal. In an overall investment strategy, SchiffGold recommends buying gold bullion first.

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