Takeaways
- Demand for physical gold surged in the first quarter.
- But not in the United States.
- Asian investors primarily drove demand for gold bars and coins as American investors continued to sit on the sidelines.
- Global demand for gold bars and coins rose by a healthy 3 percent in the first quarter, rising to 317.3 tonnes in Q1’24 from 325.4 tonnes. That was comparable to fourth quarter demand and a 20.3 percent increase from the third quarter of 2024.
- First quarter demand for gold coins and bars was 15 percent above the five-year average.
Asian Gold Demand Leads the Way
China drove the surge in retail investment demand, charting the second strongest quarter on record. Chinese investors gobbled up 126.7 tonnes of gold bars and coins. That was a 47 percent increase from Q4 ’24 and a 12 percent rise year-on-year.
The World Gold Council noted that the gain was particularly impressive given year-on-year growth was built on an already-strong Q1 2024.
According to the WGC, “The record-shattering gold price rally has been key in pushing up bar and coin demand during the quarter. With local assets – such as equities and bonds – underperforming, investors flocked to gold for returns.”
Demand for gold is so strong in China that the government allocated additional gold import quotas for commercial banks last month.
State Street Global Advisors' strategist Aron Chan described it as a "multi-layered demand base," noting that it helps support and stabilize the price even amid extreme volatility.
“This demand is less speculative and more strategic or culturally embedded, which means it is stickier and more resilient.”
Indian investors also continued buying gold, with coin and bar demand increasing by 7 percent year-on-year in the first quarter. It was the seventh consecutive quarter of year-on-year demand growth for gold coins and bars in India, the world's second-largest gold market.
Indian demand was down quarter-on-quarter, but this was primarily due to seasonal fluctuations and an inauspicious period in the Indian calendar.
Other Asian markets also reported strong year-on-year increases in gold coin and bar demand.
- Pakistan - 5%
- Indonesia - 35 %
- Singapore - 35%
- Korea - 36%
- Thailand - 25%
- Malaysia - 34%
Investment demand was flat in the Middle East, hovering just above the average level seen over the past three years.
According to the World Gold Council, Middle Eastern gold coin and bar demand growth was concentrated in Saudi Arabia, driven by positive price expectations, and Iran, due to currency depreciation, high inflation, and concern over unpredictable U.S. foreign policy.
High interest rates in Turkey created some headwinds for gold, and higher prices curbed buying in the UAE.
There was also renewed interest in physical gold in Europe with a 79 percent year-on-year surge in demand for bars and coins in Q1. However, this increase came off a very low base.
The 26-tonne increase in demand was primarily driven by German-speaking investors. Demand in the UK also got a boost as investors sought capital gains tax-compliant gold in light of last year’s budget changes to CGT thresholds.
Canadians even got in on the act, with gold coin and bar demand surging by 85 percent year-on-year.
While Asians Buy, Americans Sell
And what about the U.S.?
Gold coin and bar demand dropped to the lowest level in almost five years.
While Asian investors bought gold, Americans sold, seeking profits with prices at record levels. At 19.3 tonnes, demand was down 22 percent year-on-year and 16 percent from Q4 ’24.
World Gold Council analysts said the drop wasn’t surprising given Trump’s transition into the White House.
“Historically, Republican presidencies have generally resulted in lower retail demand; however, fieldwork suggests that investment interest picked up late in the quarter and continued through early Q2 as tariff announcements dominated headlines.”
To be fair, American investors didn’t spurn gold completely. Gold flowed into North American-based ETFs, with fund holdings increasing by 134 tonnes.
Some of that ETF demand likely came from Canadians who, as already noted, flocked to the yellow metal in Q1.
ETFs are a convenient way for investors to play the gold market, but owning ETF shares is not the same as holding physical gold.
ETFs are relatively liquid. You can buy or sell an ETF with a couple of mouse clicks. You don’t have to worry about transporting or storing metal. In a nutshell, it allows investors to play the gold market without buying full ounces of metal at the spot price.
Since you are just buying a number in a computer, you can easily trade your ETF shares for another stock or cash whenever you want, even multiple times on the same day. Many speculative investors take advantage of this liquidity.
But while a gold ETF is a convenient way to play the price of gold on the market, you don’t possess any gold. You have paper. And you don’t know for sure that the fund has all the gold either, especially when the fund sees inflows. In such a scenario, there have been difficulties or delays in obtaining physical metal.
It's significant that this gold bull rally has primarily occurred with U.S. investors on the sidelines. It will be interesting to see what happens when they jump on the bandwagon.
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