Live on Bloomberg TV

00:00Interesting report though we know the second quarter usually a seasonally weaker when it comes to demand. But what are you seeing in terms of the softening demand picture given these virus measures in China right now. Yeah that's right. In the second quarter is seasonally tends to be a bit weak. We saw a weak first quarter in China jewelry and bar and coin demand. I do believe that that's temporary for it for a number of reasons. But the reasons for that softening it's primarily because of the Covid lockdowns very strict lockdowns that took effect in Q1 in China but also the very high gold price. The gold price is up by 8 percent in the first quarter and that tends to put off some of the retail buying. But the Covid measures there'll be temporary. They've been temporary in other countries. Countries are going through different Covid cycles. China is a very important market for gold certainly for retail demand for gold. It's the largest consumer market. So what happens there is it does have an impact. But the bigger picture really is that gold demand globally is up 34 percent. And that's primarily being driven by institutional interest in gold. Gold has both consumer demand and institutional demand and they have slightly different drivers. And gold as I said is up 34 percent in the first quarter. And the big reason for that is primarily inflation. Here in Singapore inflation is at a 10 year high. Australia posted its inflation figures yesterday a 20 year high. The US about 40 year high. And recent comments from Jerome Powell for example suggests that inflation is not transitory. That was the debate for last year. It's probably going to be persistent. And gold is seen by many institutional investors as an inflation hedge. So that was a major driver of institutional demand. But also what's happening in Ukraine geopolitics. Gold as a safe haven that has had a big impact in the first quarter as well. And maybe tell us what that means for jewelry demand moving forward. I'm wondering once we see China maybe emerge out of these these virus measures and corporate lockdowns. Is that pent up demand great enough to to stage a rebound. And I'm just wondering you know given just the eco backdrop you mentioned about inflation stronger dollar higher yields. Does that actually change consumer demand in any way. Yeah it does have an impact I mean first of all on jewelry demand when the jewelry market is global but it's dominated by by China and and by by India. There was a softening in both markets primarily because of the high gold price and lack of festival buying in India. But in China it was really about the Covid story and the lockdowns. And that will be temporary. There's not going to be in place for forever. And when China does eventually reemerge again I would expect jewelry demand in China to to recover. And also let's not forget we're comparing Q1 2021 with Q1 this year. Q1 2021 was a we saw a massive rebound in consumer demand because the year previously was the height of the Covid crisis. Lockdowns worldwide at the end of 2020 beginning of 2021 we started to see countries opening up again. And that's why last year we saw a huge rebound in consumer demand for gold bars and coins and for jewelry. Jewelry accounts for about 40 percent of the annual demand for gold. And I would expect that to happen again in China when China eventually opens up. It will do. I would expect pent up demand in amongst the retail market to translate into a recovery off of jewelry demand and bar and coin demand in China as well. Turning to the question about interest rates and about yields and about the strong U.S. dollar. Yes they certainly have an impact both for institutional investment in gold and in retail investment for gold. There's a bit of tug of war if you like between inflation and and interest rates. The story though at the moment is really about the inflation piece which is way in lots of other markets around the world not just institutional markets but in some retail markets for example here in Singapore. Retail demand was was up. It was up in Australia. It's up in many of the European markets. And that's partly because consumers and institutional investors are concerned about the inflation piece. And our research shows that actually gold is not the only inflation hedge but it can be a very effective inflation actually when inflation is low or low ish. So about 3 percent or lower the average annual return for gold is about 7 to 8 percent. But in periods of high inflation. So when inflation is 3 percent or higher the average annual return for gold can be closer to 14 percent. So the data does historically suggest that gold is a good inflation hedge and that's recognized by both institutional and retail investors. It's not the only reason for investing in gold. There are other reasons as well. But certainly I think that's the that's the biggest story. But going back to China specifically it's a very local issue at the moment with the timing of the lockdowns and they'll emerge from that. Yeah. Andrew it was only recently too I just want to get a sense of I guess production and capacity ahead. It was just only recently few months few weeks back just in fact here when gold prices were just pushing two thousand bucks. What have you. What is it done as far as attitudes towards future CapEx is concerned. Has that increased that conversation. Yeah I mean I mean. I mean the a couple of things happened when the price is high which it is at the moment. Retail investors tend to be more price sensitive. Not in every market but in markets like China in Thailand for example albeit Japan as well. We tend to be quite price sensitive and lock in those prices by selling the retail market when the price is high. Institutions that creates momentum and more institutional interest. On the question about supply there are two components to gold supply which makes really is one of the reasons why gold is unique. Not the only reason but one of the reasons why it's so unique is that supply is very limited. Main supply grows at about one and a half percent on average every year. At the moment main supply is up by 3 percent but recycling is another component of supply which can take up a lot of that slack. So when the prices are high recycling increases. So recycling was up by about 15 percent in the first quarter. And this means because of this interesting dynamic in supply that new gold is fairly limited in terms of production. It takes a lot of investment and resource to prospect to source and to bring a new mine on line. It's very very expensive. This is a long term investment commitment and it's naturally geologically challenging and also restricted in terms of supply. So the baseline supply is very very limited. But actually when the price goes up and demand goes up it's recycling that can kick in and help meet some of that extra extra demand for gold but also allow consumers because of the very liquid nature of the gold market over 120 billion dollars of gold is traded every single day because it is very very liquid nature. Consumers can take advantage of that. So when the price is high and they want to cash out and benefit from those high priced prices they can do so very easily. But also institutions value liquidity as mainly as an emergency source of funding as well. So because of gold's liquid nature. That's another reason why it's such a unique and attractive asset for both institutions and consumers worldwide.

No schedule data available.

WGC: Gold Remains Resilient Amid Heightened Uncertainty

World Gold Council Regional CEO, APAC ex-China Andrew Naylor, says global gold demand (excluding OTC) in the first quarter rose 34 percent on year, thanks to strong ETF flows. He speaks with Yvonne Man and David Ingles on "Bloomberg Markets: Asia". (Source: Bloomberg)

More From Bloomberg Markets
All episodes and clips