Demand for Gold Is Expected to Grow Exponentially in 2021
The comments below are an edited and abridged synopsis of an article by Goldcore
The difference between physical gold investing and ETF investing was stark in the first quarter of 2021, according to the World Gold Council’s (WGC) Gold Demand Trends data.
Retail demand in bars and coins saw sharp increases in the fourth quarter of 2020 and the first quarter of this year. The WGC notes that a third successive quarter of growth in bar and coin investment saw it reach 339.5 tonnes—the highest since Q4 2016. The Q1 total was 36% higher year-over-year and 37% above the 5-year quarterly average of 248.5 tonnes. Fear over rising inflationary pressures was an added driver, as economies around the world responded to the massive fiscal and monetary stimulus introduced to combat the worst effects of the Covid-19 pandemic. All three sub-categories of bar and coin demand saw strong year-over-year improvement.
The last time there was such a contrast between gold ETF investment demand and gold physical demand was 2016, when the Fed started raising interest rates after seven years.
The difference between then and now is that inflation expectations are rising. Fed Chair Jerome Powell has said that it is not time to start talking about tapering the Fed’s $120 billion a month in asset purchases, and that it will start tapering before raising rates. Unlike in 2016, the Fed is not going to raise interest rates on inflation expectations. Instead, it will wait until data shows that permanently sustainable inflation near the 2% target has taken hold.