Gold demand steady in Q3, as central banks and consumer purchases offset ETF outflows2018
Lower gold prices saw retail investors take refuge in bars and coins, while jewellery purchases increased in India, China and across South-East Asia.
Global gold demand was steady in Q3 2018 at 964 tonnes (t), up just 6t year-on-year according to the World Gold Council’s latest Gold Demand Trends report. Robust central bank buying and a 13% rise in consumer demand offset large outflows in gold- backed exchange-traded funds (ETFs).
Lower gold prices saw retail investors take refuge in bars and coins, while jewellery purchases increased in India, China and across South-East Asia. Bar and coin investors took advantage of the price dip, with demand up 28% y-o-y. Stock market volatility and currency weakness boosted demand in many emerging markets. China, the world’s largest bar and coin market, saw demand rise 25% to 86t y-o-y.
Iranian demand hit a five-and-a-half year high at 21t. Jewellery demand in Q3 2018 saw price-led y-o-y growth of 6%. Lower gold prices during July and August encouraged bargain hunting among price-sensitive consumers. Growth in India and China, up 10% in each region, outweighed weakness in the Middle East, which was down 12%. Central bank gold reserves grew 148t in Q3 2018, up 22% y-o-y.
This is the highest level of net purchases since 2015, both quarterly and year-to-date. The quarter was particularly notable due to a greater number of buyers. Demand for gold in technological applications rose in Q3 by 1% y-o-y, to 85t. This marks the eighth consecutive quarter of growth, primarily driven by gold’s use in electronics such as smartphones, servers and the automotive industry. ETF outflows reached 103t in Q3 2018, the first quarter of outflows since Q4 2016.
North America accounted for 73% of the outflows, fuelled by risk-on sentiment, a strong dollar and price-driven momentum. Alistair Hewitt, Head of Market Intelligence at the World Gold Council, commented: “The physical market responded quickly when the gold price breached US$1,200/oz in August, with retail investors around the world diving into the market. And there are welcome developments in the central bank space. They’re buying a lot and we are seeing new central banks enter the market as they look to hedge their dollar exposure. “The equity sell-off last week is a timely reminder of the threats stalking markets: valuations are stretched, debt levels are high, and rising rates and quantitative tightening pose risks that an allocation to gold can help hedge.”
The total supply of gold decreased slightly in Q3 2018, down 2%, as de-hedging continued for a second consecutive quarter, and lower gold prices and economic improvement in the US and Europe discouraged recycling. In contrast, mine production in Q3 registered its sixth consecutive quarter of growth, up 2% to 875t and is the highest level of quarterly production in our records. A combination of growth from key producing countries, such as Russia and Canada, as well as the improving production pipeline will be supportive factors for further growth in 2018.
The key findings included in the Gold Demand Trends Q3 2018 report are as follows:
· Overall demand was 964t, an increase of 1% compared with 958t in Q3 2017
· Total consumer demand rose by 13% to 834t, from 739t in the same period last year
· Total investment demand was down 21% to 195t compared with 246t in Q3 2017
· Global jewellery demand increased by 6% to 536t, from 506t in the same period in 2017
· Central bank demand was up by 22% to 148t compared with 122t in Q3 2017
· Demand in the technology sector increased 1% to 85t compared with 84t in Q3 2017
· Total supply fell by 2% to 1,162t, from 1,186t in the same period last year
· Recycling decreased by 4% to 306t, compared with 318t in Q3 2017