Gold bar and coin demand and how the GFC changed everything

ABC Bullion have been involved in the precious metal industry since 1972.
 
Either directly, or via sister companies including ABC Refinery and Custodian Vaults, we manufacture gold bars and coins, as well as buy, sell and store these items with our customers.
 
Given our position as the largest independent bullion dealer in Australia, with offices in Sydney, Melbourne, Brisbane and Perth, we have a front row seat to precious metal demand trends across the nation.
 
This article has a global focus, focusing on total gold bar and coin demand since 2010, as well as which nations or regions are the major buyers.
 
We also look at some of the longer-term trends in gold investment and highlight why the Global Financial Crisis really did change everything when it comes to gold.

Total demand levels

Since 2010, global gold bar and coin demand has totalled just over 13,250 tonnes, at an average of slightly more than 1,100 tonnes per year. Demand for gold bars has accounted for almost 75% of total gold bar and coin demand over this period, though coins have become more popular as a share of total – demand
 
The trend in gold bar demand as a percentage of total bar and coin investment, as well as total annual purchases, can be seen in the chart below.

Chart: Total gold bar and coin demand, and gold bars as percentage of total 2010 to 2021

Source: World Gold Council, ABC Bullion

Since 2010, the more than 13,000 tonnes of gold bought in bar and coin form has accounted for approximately 34% of total gold mining production.
 
It has also accounted for approximately 27% of total gold demand over this time period, making it a very important part of the overall demand story.

Who are the major buyers?

China and India are the two largest buyers of gold bars and coins. China has bought more than 3,200 tonnes of gold bars and coins since 2010, while India has purchased just over 2,700 tonnes.
 
Those purchases in India effectively match the purchasing levels seen across the entirety of Europe over the same time period. European demand is predominantly driven by Germany (52% of total European demand), who have purchased just over 1,400 tonnes of gold bars and coins since 2010.
 
Since 2010, we’ve also seen significant buying in other parts of Asia, most notably Thailand (+763 tonnes) and Vietnam (+643 tonnes), and from the Middle East (+835 tonnes), while investors in the United States have also added almost 800 tonnes of gold bars and coins to their portfolios over this time period.
 
The chart below looks at the percentage of total bar and coin demand in each year that has come from the United States and Europe (averaged 27% over this entire time period) vs. the share that has come from China, India and the Middle East (averaged 51% over this entire time period).

Source: World Gold Council, ABC Bullion

This data highlights how important emerging, developing and middle-income markets are to the overall outlook for gold, given comfortably more than 50% of total gold and bar coin demand emanates from these areas.
 
The chart also makes it clear that demand from the United States and Europe, as a share of total demand, remains an important factor. Demand from these regions bottomed out at around 20% in 2013 (the year the gold price crashed in USD terms). Since then its recovered notably, making up 33% of total demand in 2021.
 
It also needs to be remembered that European and US investors are far larger users/investors in gold ETFs (95% of all gold ETF holdings, which come to circa 3,500 tonnes, are held in European and North American listed products).

The Global Financial Crisis and gold demand

It’s hard to believe that it’s been almost 15 years since the Global Financial Crisis (GFC) hit, with the collapse of Lehman Brothers taking place in September 2008.
 
History would suggest that the steps taken by policymakers to first stabilise, and then support the future growth of the financial system, and by extension the economy, in the aftermath of the GFC, fundamentally changed the game for gold investment in Western markets.
 
Up until the GFC hit, most people would never have expected that things like zero interest rates, quantitative easing, or the running of trillion-dollar deficits would occur in the United States or in Europe.
 
But they did.
 
Investors have reacted accordingly, with demand for gold bars and coins soaring in the aftermath of the GFC. And while these demand levels move up and down in any given quarter or year, there seems little doubt we are in a new paradigm for gold investment.

This can be seen in the chart below, which was shared by the World Gold Council’s Chief Market Strategist John Reade. It shows more than 20 years-worth of gold bar and coin demand in the United States and Europe.

Source: World Gold Council

As you can see, the last ten to twelve years have on aggregate seen demand levels that dwarf what was seen between the turn of the century and the onset of the GFC.
 
Commenting on this in early August 2022, John Reade, Chief Market Strategist at The World Gold Council, stated that: “I think this chart is one of the most important that we have in our database. It shows how bar and coin demand for gold structurally changed after the GFC and then has been re-invigorated with the increase in inflation.”
 
We couldn’t agree more with the sentiments expressed by John Reade, with the many hundreds of engagements we have with our client base on a daily basis attesting to these higher levels of demand for gold, and the increased focus that Australian investors have placed on capital preservation.

Key insights for investors

This article highlights the importance of gold bar and coin demand to the overall outlook for gold, with investments of these nature accounting for more than 30% of gold production level, and 27% of total gold demand since 2010.
 
Demand for gold bars and coins is also truly global in nature, with significant levels of buying seen across Asia,  the Middle East, in Europe and in North America.
 
Lastly, the longer-term data demonstrates clearly that gold demand levels have seen a profound change since the Global Financial Crisis hit the better part of 15 years ago.
 
Since then, investors, including tens of thousands of Australian’s, have shown an increased focus on wealth preservation, and have turned to history’s longest running store of wealth.
 
Given the fragile investment, economic and geopolitical environment we all face today, one should expect strong levels of gold demand to continue.

Investing in gold bars and coins

If you would like to find out more about investing in in gold bars and coins, please contact ABC Bullion on 1300 361 261
 
Our client services and sales teams will be happy to talk through our extensive product range, which includes products like Pool Allocated Gold and the ABC Bullion Gold Saver, as well as our multiple storage options, which include private vaulting at our sister company Custodian Vaults.

Warm regards,

The ABC Bullion Team

Disclaimer: This document has been prepared by Australian Bullion Company (NSW) Pty Limited (ABN 82 002 858 602) (ABC). The information contained in this document or internet related link (collectively, Document) is of a general nature and is provided for information purposes only. It is not intended to constitute advice, nor to influence any person in making a decision in relation to any precious metal or related product. To the extent that any advice is provided in this Document, it is general advice only and has been prepared without taking into account your objectives, financial situation or needs (your Personal Circumstances). Before acting on any such general advice, we recommend that you obtain professional advice and consider the appropriateness of the advice having regard to your Personal Circumstances. If the advice relates to the acquisition, or possible acquisition of any precious metal or related product, you should obtain independent professional advice before making any decision about whether to acquire it. Although the information and opinions contained in this document are based on sources we believe to be reliable, to the extent permitted by law, ABC and its associated entities do not warrant, represent or guarantee, expressly or impliedly, that the information contained in this document is accurate, complete, reliable or current. The information is subject to change without notice and we are under no obligation to update it. Past performance is not a reliable indicator of future performance. If you intend to rely on the information, you should independently verify and assess the accuracy and completeness and obtain professional advice regarding its suitability for your Personal Circumstances. To the extent possible, ABC, its associated entities, and any of its or their officers, employees and agents accepts no liability for any loss or damage relating to any use or reliance on the information in this document. It is intended for the use of ABC clients and may not be distributed or reproduced without consent. © Australian Bullion Company (NSW) Pty Limited 2020.