Consumer demand for gold in Thailand fell 54% year-on-year to 3.8 tonnes in the first quarter, from 8.3 tonnes in the first quarter of 2021, as high prices weighed on sentiment, according to the World Gold Council (WGC).
The weak performance in the Thai consumer market contrasted with the overall positive trend for gold investment worldwide, the WGC said in its latest Gold Demand Trends report.
First-quarter global demand (excluding over the counter) was up 34% year-on-year, thanks to strong flows into exchange-traded funds (ETFs), reflecting gold's status as a safe-haven investment during times of geopolitical and economic uncertainty.
The decline in Thailand was due largely to a 74% year-on-year fall in total bar and coin investment, from 6.2 tonnes in the first quarter of 2021 to 1.6 tonnes in the first quarter of 2022, the WGC said. However, jewellery demand rose 8% to 2.2 tonnes over the same period.
Consumers in Thailand tend to be price-sensitive, and with high local prices many investors chose to lock in profits. Anecdotal evidence in Thailand also suggests that retail gold investment products continue to face significant competition from paper gold products.
"While not at pre-pandemic levels yet, the 8% year-on-year increase in jewellery demand can be explained by the reopening of the economy and resumption of tourism," said Andrew Naylor, regional chief executive for Asia Pacific (ex China) at the WGC.
"Consumers, however, are still holding back on the purchase of big-ticket items, instead choosing to lock in profits from selling with the recent price surge."
Geopolitical crises weighed heavily on the global economy and reinvigorated investor interest, pushing the gold price briefly to US$2,070 per ounce in March, just shy of its all-time high of $2,074.88 set in August 2020. Prices have since eased back below $1,900.
Gold ETFs had their strongest quarterly inflows of 269 tonnes since the third quarter of 2020, more than reversing the 173-tonne annual net outflow from 2021 and driven in part by rising gold prices.
Gold bar and coin demand in the quarter was 11% above its five-year average at 282 tonnes. However, renewed lockdowns in China and high prices in Turkey contributed to a 20% year-on-year decline, compared to the very strong first quarter of 2021.
In the jewellery sector, global gold demand fell 7% year-on-year to 474 tonnes, driven primarily by softer demand in China and India. Despite a strong performance in China over the Lunar New Year period, this was later dampened by Covid outbreaks in February and March leading to strict lockdowns.
In India, a decline in the number of weddings and lack of auspicious days in the first quarter had a direct impact on gold purchasing in the country. This, coupled with rising gold prices globally, prompted many Indian consumers to hold back on their purchases.
The demand for gold in technology hit a four-year high of 82 tonnes, up 1% on the first quarter of 2021. While the sector saw modest growth, it was not free from challenges. Major financial and industrial hubs such as Shanghai were under renewed lockdowns, which affected the electronics supply chain.
Net buying by central banks more than doubled from the previous quarter, adding over 84 tonnes to official gold reserves during the first quarter of 2022, with buying in the sector dominated by countries such as Egypt and Turkey. While buying was 29% lower than in the first quarter of 2021, central banks continue to value gold's performance during times of uncertainty, the WGC said.
Total gold supply in the first quarter increased by 4% year-on-year. This was driven by strong mine production, which hit 856 tonnes. In addition, recycling rose 15% on the previous year, reaching 310 tonnes in response to higher gold prices.
"The first quarter of 2022 has been a turbulent one, marked by geopolitical crises, supply chain difficulties and surging inflation," said Louise Street, senior analyst at the World Gold Council for Europe, the Middle East and Asia.
"These global events and market conditions have solidified gold's status as a safe-haven holding, not just for investors but also for retail consumers thanks to its unique position as a dual-natured asset class.
"Given the current market dynamics, investment demand is expected to remain strong as the combination of high inflation and heightened geopolitical tensions will likely fuel demand for gold among investors.
"On the other hand, consumers are facing a global cost of living crisis, meaning many will reconsider how they spend their money. While consumer demand has been recovering from Covid-inflicted weakness, continued growth in jewellery demand could be stifled by rising costs and a general economic slowdown."