Surge in ETF and Crypto-Backed Token Purchases as Central Bank Interest Declines

The gold market is experiencing a notable change, with a decrease in central bank acquisitions and a rise in demand from exchange-traded funds and cryptocurrencies linked to gold. Recently, the latter has achieved a peak not seen in three years, as indicated by the net issuance of tokens associated with this precious metal.

Recent data reveals that over $80 million in these tokens were generated within the last month. This increase contributed to a 6% growth in the sector’s overall market value, reaching $1.43 billion. Furthermore, the monthly transfer activity surged by 77% to $1.27 billion, reflecting a significant revival of interest in digital gold assets.

The uptick in token transactions aligns with a wider pattern in the gold market.

According to the latest findings from the World Gold Council, total gold demand in the year’s first quarter reached 1,206 tonnes, marking a 1% increase from the previous year and representing the strongest first quarter since 2016. This growth occurred despite a notable decline in central bank purchases, which decreased from 365 tonnes in the previous quarter to 244 tonnes.

Gold-focused ETFs have been instrumental in this transition. Investment demand has surged more than double to 552 tonnes, indicating that investors are gravitating towards gold, which is a historical preference of central banks.

These influxes propelled the average quarterly gold price to an unprecedented $2,860 per ounce, reflecting a 38% rise compared to the prior year. However, the price saw a slight decline of 2.35% last week after a 23.5% increase year-to-date, even as risk assets, including cryptocurrencies, gained ground. Currently, spot gold is trading at $3,240.

In contrast to the decline in traditional gold demand, particularly in jewelry which has fallen to pandemic-era lows, the demand for bars and coins remains robust, especially in China.