Investors poured record amounts into gold ETFs at the start of 2020, helping to push prices to record highs — but overall demand actually dropped

• Gold demand fell 6% in the first half of the year even as prices break to their highest levels ever, according to a new report released by the World Gold Council on Thursday.
• The World Gold Council said in a report that COVID-19 weakened consumer demand due to its "squeeze on disposable income."
• But consumer weakness was partially offset by record ETF inflows. Investors in gold ETFs bought 734 tonnes worth of the metal in the first half of 2020, compared to the previous record 646 tonnes.
• Gold reached its highest level ever this week amid growing tensions between US and China and as investors flocked to safe-haven assets.

Gold demand fell 6% in the first half of the year even as investors poured record amounts into gold ETF, pushing prices to their highest levels ever, according to a new report released by the World Gold Council on Thursday.

In the report the World Gold Council said global gold demand fell 11% year-on-year in Q2 to 1,015.7 tonnes and demand for the first half of the year was weaker at 2,076 tonnes, a drop of 6% from 2019.

"The COVID-19 pandemic was again the main influence on the gold market in Q2, severely curtailing consumer demand while providing support for investment, the Council said.

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Global consumer demand was weak

Investment in gold bars and coins drastically fell in Q2 by 17% to an 11-year low at 396.7 tonnes, as steep declines in Asia offset growth in the West as investors around the world adjusted their buying habits during the pandemic in different ways.

Asia is usually known to boast strong consumer gold demand, as many people hold the precious metal for cultural reasons, and buy it for special occasions and important life events.

Demand for jewellery fell in the first half of the year by 46% as economies were placed under lockdown and likely felt a "squeeze on disposable income," the World Gold Council said.

Consumer weakness was offset by record ETF inflows

The WGC noted that while demand from consumers was weak, speculative interest remained high in the metal.

"The global response to the pandemic by central banks and governments, in the form of rate cuts and massive liquidity injections, fueled record flows of 734t into gold-backed ETFs," it said.

"These flows helped lift the gold price, which gained 17% in US dollar terms over the first half, hitting record highs in many other currencies," the World Gold Council added.

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Inflows into gold ETFs accelerated in Q2, taking the figure for the first half of the year to a record-breaking 734 tonnes, surpassing the annual record of 646 tonnes.

The price of gold reached its highest level ever this week amid growing tensions between the US and China. The precious metal closed at a new record high of $1970.92 on Wednesday.

While the dollar is undoubtedly known as the world's number one reserve currency, many investors perceive gold to be another safe haven asset worth flocking to at times of economic turmoil.

Gold has been supported by growing US-China tensions in recent months as China enacted security legislation in Hong Kong and the countries engaged in a blame war over who is responsible for the coronavirus outbreak.

They flared again last week as the US ordered the closure of the Chinese Consulate in Houston and China subsequently ordered the closure of the US Consulate in Chengdu.

Many of Wall Street's biggest players expect the price rally in gold to continue.