A fall in purchase of jewellery and by central banks could not offset could not offset a sharp increase in investment demand for gold, pushing global sales to the precious metal down 10 percent year on year to 993 tonnes (t) in the third quarter of 2016, according to the World Gold Council’s (WGC) latest Gold Demand Trends report.
Total investment demand rose 44% to 336t, with exchange-traded products (ETP) inflows accounting for 146t, as investors continued to build up their strategic allocations to gold. The third successive quarter of inflows into ETPs – which were dominated by European funds – were predominantly driven by ongoing economic and geopolitical uncertainty, ahead of the US election [today] and also in Europe post the Brexit referendum decision, and in advance of various European elections next year.
These flows were further supported by relatively expensive equity valuations and low-yielding sovereign bonds. By contrast, bar and coin demand totalled 190t in Q3, down 36% year-on-year.
“We continued to see flows into gold-backed ETPs in Q3, taking year-to-date inflows at the end of September to 725t. Institutional investors have looked to hedge against uncertainty stemming from geopolitical risk, including Brexit, the US Presidential race and the potential impact of elections in France and Germany next year. In addition, negative interest rates – a theme ever present this year – continued to underpin institutional demand,” said Alistair Hewitt, Head of Market Intelligence at the World Gold Council.
Both China and India, the world’s leading gold markets, experienced a drop in consumer demand this quarter, of 22% and 28% respectively, the WGC trends report said.
“In China, ongoing economic uncertainty contributed to a softening in sentiment towards the precious metal, which was magnified by high gold prices and changing consumer behaviour. In India, more stringent government policies, high gold prices and a squeeze on disposable rural incomes combined to dampen consumer sentiment. These were key factors in total jewellery demand falling 21% year-on-year to 493t,” it said in a statement.
“The core physical markets of India and China continued to suffer under high prices and squeezed incomes in Q3, but it looks like Q4 may be better. Price expectations have always been a key trigger for gold purchases and consumers responded quickly to the price drop in early October. And in the case of India, the first healthy monsoon in three years will boost rural incomes, supporting demand during the festive and wedding season,” Hewitt said.
Total mine supply reached 832t this quarter, down 4% from the 866t seen in the same quarter last year. The relative stability can be attributed to the cost cutting programmes that have been a feature over the past few years. The rising gold price also encouraged consumers to recycle their gold, generating more than 341t of supply this quarter, up 30% on the same period last year. This was particularly prevalent in India, where consumers cashed in their holdings, swelling the amount of recycled gold in the region to 39t, its highest level since Q4 2012.
The key findings included in the Gold Demand Trends Q3 2016 report are as follows:
- Overall demand for Q3 2016 was 993t, a fall of 10% compared to 1,105t in the same period last year
- Total consumer demand for Q3 2016 fell 26% to 683t from 917t in the same quarter last year
- Total investment demand grew 44% to 336t this quarter compared to 232t last year
- Global jewellery demand was down 21% at 493t, compared with 622t in the same period last year
- Central bank demand reached 82t this quarter, compared with 168t in the same period last year
- Demand in the technology sector was virtually flat year-on-year, down just 1% to 82t
- Total supply grew by 4% to 1,173t this quarter from 1,127t in the third quarter of last year. This was largely driven by recycling, which increased 30% to 341t, from 262t in the same period last year.