In times of market volatility, investors seek so-called “safe havens” like gold to limit exposure to losses. With financial markets seeing the most volatility in a decade as a result of the coronavirus, investors have indeed begun fleeing to gold, and gold prices posted their biggest weekly gain since 2008. This new demand has highlighted significant structural problems in the gold market, but few viable alternatives have been found.
- Gold prices posted their biggest weekly gain since 2008 amid the coronavirus market crash.
- Bitcoin, believed by some to be a substitute for gold, has not risen in price among the market panic.
- Supply chain disruptions have led to unprecedented disruptions in the gold market.
- Industry experts believe that gold reserves are now being mined faster than they are replaced.
Our data comes from the World Gold Council and shows annual global gold demand as of Q4 2019 by category. Our viz is a Voronoi chart with each category drawn proportionally to demand.
The Largest Sources of Annual Global Gold Demand
1. Jewelry: 2,107t (48.37% of demand)
2. Investment (total bar & coin): 870.6t (19.99% of demand)
3. Central banks & other institutions: 650.3t (14.93% of demand)
4. Investment (ETFs & similar): 401.1t (9.21% of demand)
5. Technology: 326.6t (7.5% of demand)
Nearly half (48.37%) of the world’s annual demand of over 4,000 tons of gold goes to jewelry, a growth market which was estimated in 2018 at $278.5 billion. However, a recession may slow the growth of this market, as it did during the 2008 recession. While this category may drop in demand, that still leaves significant categories of demand in investing and financial institutions.
While gold’s role as a safe haven for investors is nothing new, the coronavirus has brought unprecedented pressures on the industry. At a time when demand for gold is at a high, mines are shutting down from South Africa to Canada. These supply chain disruptions have caused traders to fear for unsettled futures contracts for gold bullion, as international travel has been curtailed.
Even prior to the coronavirus upending markets, there had been concerns over the sourcing and use of gold, on human rights and environmental grounds. With these serious flaws of gold -- a commodity that becomes only more flawed when it’s needed most, in a crisis -- is there an alternative?
Some analysts suspect a digital currency could provide a safe haven without the flaws of gold, and even the U.S. federal government has considered making a digital dollar to deliver payments quickly to citizens. However, Bitcoin -- the largest digital currency by market cap -- has proven not to correlate with the price of gold, but instead with the equity market, making the digital currency an undesirable safe haven.
With a lack of viable alternatives, demand for gold may continue to surge in demand among investors these uncertain times, along with demand from the technology sector, where gold is used in everything from medicine to astronomy. Even after the coronavirus is contained, there could be long-term gold supply issues: experts believe we may have reached “peak gold”, the point at which gold reserves are being mined faster than they are replaced.
Will the price of gold continue to rise, despite issues with supply? Will a digital substitute like Bitcoin ever work? Let us know in the comments and share with your friends.
Data: Table 1.1