Gold had a solid run overall in 2020, registering growth of 24.6% — the highest annual gain since 2010 — primarily riding on the global uncertainty stemming from the COVID-19 pandemic. Also, the ultra-low interest rate environment drove investors to safe-haven assets. Fears of a supply crunch with miners halting their operations as per government mandates in the earlier part of the year also contributed to the price movement. Gold even shot past the $2,000 an ounce threshold for the first time in August 2020.
However, gold prices lost momentum during fourth-quarter 2020 as improving prospects for the global economy dulled the sheen of gold. Prices dipped to $1,767 per ounce at November end but picked up soon to close the quarter at around $1,895 per ounce. Nevertheless, average gold prices in fourth-quarter 2020 were around $1,878 an ounce, higher than $1,513 an ounce in fourth-quarter 2019.
The conclusion of the widely anticipated US election eliminated a key element of uncertainty, which otherwise was working in favor of gold. Also, the rollout of vaccines uplifted market sentiment, thereby, prompting investors to shift to riskier assets like stocks. Gold ETFs witnessed net outflows of 130 tons over the fourth quarter. Even though the quarter started positively with inflows of 18.8 tons in October, November witnessed net outflows of 108.7 tons due to drop in gold prices. December witnessed net outflows of 40.1 tons.
Gold demand in the fourth quarter plunged 28% to 783.4 tons — the weakest quarterly performance since the Global Financial Crisis. Jewelry demand fell 13% year-over-year to 515.9 tons. While jewelry demand was weak in China, India saw an improvement in the quarter aided by reopening of the economy, announcement of vaccines and pent-up demand from festivals and weddings during the fourth quarter. Further rural demand was higher, aided by a good monsoon.