The mid-year outlook for Gold

Mohammed Shaheen
The gold outlook for the year 2021 overall was a big hit. Gold saw an uptick in the market with a bullish chart. There were quite a few reasons that gave a push to the gold market. Interest rates will likely remain a key driver for gold in the short and medium-term. Yet, the negative impact that higher rates could bring will likely be offset by the longer-lasting effects and unintended consequences of expansionary monetary and fiscal policies created to support the global economy. These may include inflation, currency debasement, and higher exposure to risk-on assets in portfolios. Combined with attractive entry levels, these factors could prompt strategic investors to add gold to their allocation strategies and support central bank demand during the second half of the year.
However, while consumers may also benefit from the economic recovery and recent price pullback, new COVID variants may limit uptake in gold jewelry in key markets.
Strong consumer demand recovery and Q2 gold ETF inflows were not enough to offset heavy Q1 outflows.
Gold demand (excluding OTC) for Q2 was virtually in line with Q2 2020 at 955.1t (-1%). That took H1 demand to 1,833.1t, down 10% y-o-y.
Q2 jewelry demand (390.7t) continued to rebound from 2020’s COVID-hit weakness, although remained well below typical pre-pandemic levels, partly due to weaker Indian demand growth. Demand for H1, at 873.7t, was 17% below the 2015-2019 average.
Bar and coin investment saw a fourth consecutive quarter of strong year-on-year gains: Q2 demand of 243.8 resulted in an H1 total of 594.t, the strongest since 2013.
Modest Q2 inflows into gold-backed ETFs (40.7t) only partly offset the heavy outflows from Q1; consequently, ETFs saw H1 net outflows (of 129.3t) for the first time since 2014. Central bank buying continued in Q2. Global gold reserves grew by 199.9t, which took H1 net buying to 333.2t – 39% higher than the five-year H1 average, and 29% above the ten-year H1 average.
Gold used in technology continued to recover from the 2020 lows: Q2 demand was 18% higher y-o-y at 80t – in line with average Q2 demand from 2015-2019 of 81.8t. H1 demand (161t) was fractionally above that of H1 2019 (160.6t).

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