Wealthy Asian investors bet on gold, offsetting jewellery decline

Rising gold prices are hitting demand for traditional applications such as jewellery and dentistry, but the voracious appetite of wealthy Asian investors is more than offsetting other declines.

Strong buying of physical bars on the over-the-counter market, particularly by family offices in Asia, helped gold demand post its best second quarter on record going back at least 25 years, according to the World Gold Council.

Wealthy individuals and asset managers in China and elsewhere in the region have been stockpiling the precious metal to help offset their growing “concerns around credit, debt and financial conditions,” Joseph Cavatoni, WGC’s chief market strategist for the Americas, said in an interview. Holding physical gold gives them “comfort” in the current fast-moving climate, he added. Of the world’s 200 richest people, more than a quarter reside in Asia, Bloomberg data show.

In the April-June period, purchases in the hard-to-track OTC market totaled 329.2 metric tons, bringing total demand to 1,258.2 tons, according to the group’s report. That’s up 4% year-over-year. Without the strength of the OTC market, demand would have fallen 6% over the same period, largely due to a sharp drop in jewelry consumption.

The report sheds some more light on the factors driving the global gold market, whose prices hit impressive highs earlier this month. Prices are being boosted by expectations that upcoming interest rate cuts by the US Federal Reserve will attract more investors to the exchange-traded fund market. The metal has also been supported by continued demand from central banks and rising geopolitical tensions, including the tumultuous US presidential campaign, which increase its appeal as a safe haven asset.

“The background to all this is that central banks are still involved,” Cavatoni said. “India and Poland kept buying” even as China slowed, he said. Central bank gold buying rose 6% year-on-year, but below the brisk pace of the first quarter. At the same time, price-sensitive consumers have reined in their jewelry purchases, which fell about 18% quarter-on-quarter, the report said.

Meanwhile, OTC demand was almost on par with jewelry consumption, long a major driver of global gold demand. Wealthy investors like the OTC market for its opacity. Most transactions are conducted through dealers or between buyers and sellers directly, without an exchange or clearinghouse.

The WGC, an international trade association of gold producers that lobbies on behalf of its members, expects prices to continue to “maintain or slowly increase from current levels” in the second half. Gold has already risen by around 15% this year.