NEW YORK • Western investors piling into gold in the pandemic are more than making up for a collapse in demand for physical metal from traditional retail buyers in China and India, helping push prices to an eight-year high.

Inflows into exchange-traded funds (ETFs) this year — mostly in North America and Europe — are already inches away from the annual record set in 2009, according to data compiled by Bloomberg.

Meanwhile, demand in China and India, the world’s two biggest buyers of gold bars, coins and jewellery, plunged after the coronavirus stalled imports and emptied malls. Sales have been slow to return as rising prices deter buyers.

The shift underscores the global push-and-pull for gold between western investors looking for a safe haven and traditional demand centres for physical gold in Asia. It also raises crucial questions for the market this year, as gold prices risk losing support if ETF inflows slow down, or could gain even more momentum if Chinese and Indian demand bounces back.

“We expect the US and European investors to remain interested in gold regardless of Asian demand,” said DWS Investment Management Americas Inc head of commodities and portfolio manager Darwei Kung. “If the buying pattern were to go up for China and India at the same time as what you see in the ETF market, then the price would have come up even further.”

Fear-driven investment demand in developed countries has contributed about 18% to this year’s gain in gold prices, while weaker buying by emerging-market (EM) consumers provided an 8% drag, Gold- man Sachs Group Inc estimated in a June note. An economic recovery and a weaker dollar may mean EM demand in the second half of the year could “shift from being a drag on gold prices to a tailwind”.

Still, higher gold prices could exacerbate “demand destruction” in the East and make prices even more dependent on investors in the West, said Commerzbank AG analyst Carsten Fritsch.

Spot gold has risen 17% in 2020, closing out the second quarter with the largest rally in more than four years. Last Tuesday, gold futures on the Comex topped US$1,800 (RM7,722) an oz for the first time since 2011.

The higher prices have had a chilling effect on Asian shoppers even as economies reopen. Traditionally seen as a store of wealth, demand for jewellery in China and India tumbled as lockdowns, job losses and weak economic growth curbed discretionary spending.

Precious metals consultancy Metals Focus Ltd forecasts a 23% decline for Chinese gold jewellery consumption in 2020, while Indian demand is expected to drop 36%. Chinese gold sales could be as much as 30% lower than 2019, said China Gold Association CEO Zhang Yongtao. Still, that is an improvement from a previous estimate of a 50% decline when the outbreak was at its peak, he said. — Bloomberg