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Central bank gold demand hits record high in Q1 due to U.S. banking sector instability.

During the first quarter ending March, global reserves saw an increase of 228 tons from central banks, marking the highest rate of accumulation since the start of this data series in 2000. Elevated gold-backed ETF inflows in March, catalyzed by systemic risk concerns in the U.S. economy, balanced out outflows experienced in the year's initial two months.

The World Gold Council (WGC) notes a "mixed picture" in overall global demand, despite central banks achieving a record high demand for gold in the first quarter. Gold prices surpassed the $2,000 per ounce mark this week, nearing record highs due to global economic uncertainty, anticipated halt in Federal Reserve interest rate hikes, and potential issues in the U.S. banking sector that are propelling investors towards the precious metal.

The WGC's recent Gold Demand Trends report, released Friday, demonstrated a 13% decrease in demand (excluding over-the-counter) in the first quarter compared to the same period last year. This shift is primarily due to base effects, as demand had surged in that quarter as investors sought safe havens after Russia's invasion of Ukraine.

Nevertheless, total gold demand rose by 1% from the first quarter of 2022, driven by a resurgence in the OTC market. In terms of central banks' activities, the rate of gold accumulation slowed from recent quarters, even though it marked the highest first-quarter rate since 2000.

Louise Street, Senior Market Analyst at the WGC, elaborated on Thursday that this activity mirrors trends observed last year when central bank gold purchases reached an 11-year peak. She emphasized gold's diversified asset role, long-term store of value, and its growing importance during crisis periods.

Despite anticipating a moderation in central bank demand following the surge in 2022, the WGC notes a shift in buying patterns from developing markets towards more developed financial centers. The Monetary Authority of Singapore (MAS) emerged as the largest single buyer in the quarter, while the People’s Bank of China (PBoC) and Turkey also significantly increased their reserves.

Gold jewelry demand among Chinese consumers accounted for 41% of the global total, bolstered by the removal of zero-Covid measures. Conversely, high and fluctuating prices reduced demand in India, resulting in its weakest first quarter in three years. Overall, the jewelry sector remained relatively steady in the first quarter, with China's demand offsetting India's decline.

Regarding investment trends, the WGC reported a significant surge in gold demand following the collapse of Silicon Valley Bank, marking the start of a series of failures in the U.S. banking system. This was accompanied by significant inflows into gold-backed ETFs in March, spurred by fears of systemic risk in the U.S. economy, which balanced outflows from earlier in the year.

Bar and coin demand increased by 5% year-on-year to 302 tons, with U.S. demand reaching its highest quarterly level since 2010 due to recession fears and banking instability. In contrast, European demand, particularly in Germany, weakened due to positive real interest rates and a rise in the euro gold price, prompting investors to take profits.

Despite these shifts, the WGC noted continued inflows in North America during the second quarter, now extending to Europe. Street explained that various factors, including high gold prices, the mini banking crisis in March, ongoing inflation, and concerns around global economic recovery, impacted different sectors and geographies differently.

Total gold supply rose by 1% year-on-year, driven by a record high in first-quarter mine production of 856 tons and increased recycling of 310 tons.

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