June 24, 2020 / 9:47 AM / 17 days ago

Demand plunge will spoil gold rally, says Metals Focus

    By Peter Hobson
    LONDON, June 24 (Reuters) - Demand for gold will weaken this
year as a surge in purchases by investors will not offset a
dramatic fall in consumption by jewellers, industry and central
banks, an industry report said on Wednesday.
    Consultancy Metals Focus also predicted that gold prices
would average $1,700 an ounce this year, suggesting that a rally
to eight-year highs around $1,770 will stall. 
    The coronavirus outbreak has turned the global gold market
on its head. 
    Lockdowns have collapsed sales of jewellery, bars and coins
in markets including China and India that are usually the
engines of gold demand, while western investors have rushed to
buy what they see as a safe asset for turbulent times. 
    Jewellery makers will use 1,596 tonnes of gold in 2020, down
from 2,137 tonnes last year, Metals Focus said in its Gold Focus
2020 report. 
    Central banks will buy 350 tonnes, down from 646 tonnes in
2019, and industries such as electronics manufacturers will use
291 tonnes, down from 326 tonnes last year, it said. 
    Investors will only partially compensate. 
    Sales of bars and coins will rise to 925 tonnes from 850
tonnes last year and exchange traded funds, which store gold on
behalf of investors, will increase their stockpile by 900
tonnes, compared to 404 tonnes in 2019, Metals Focus said.
    Gold supply would decline by only 1% to 4,762 tonnes,
leaving the market oversupplied by 690 tonnes, the seventh
consecutive annual surplus and the biggest since at least 2011,
according to Metals Focus. 
    Its prediction of average prices this year of $1,700 an
ounce, while below current levels, is 22% higher than last
year's average of $1,393 an ounce.
    
    GLOBAL GOLD SUPPLY AND DEMAND (TONNES)    
                             2020(f)       2019  % change
 Jewellery                      1,596     2,137       -25%
 Industrial                       291       326       -11%
 Physical investment              925       850         9%
 Hedging                           10         1       900%
 Official sector                  350       646       -46%
 Exchange traded products         900       404       123%
 TOTAL DEMAND                   4,072     4,364        -7%
 TOTAL SUPPLY                   4,762     4,831        -1%
 MARKET BALANCE                   690       469        47%
    
    *Source: Metals Focus, Gold Focus 2020
    
    

 (Reporting by Peter Hobson; editing by Emelia Sithole-Matarise)
  
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