Q3 Gold ETF Inflows Offset Weaker Demand Elsewhere

By Glenn Dyer | More Articles by Glenn Dyer

A surge in investment in gold-backed exchange-traded funds (ETFs) offset a decline in purchases of jewellery, bars, and coins to push global gold demand slightly higher in the third quarter, according to the World Gold Council’s (WGC) latest quarterly demand report on Tuesday.

The rise in demand from ETF’s overshadowed what was another solid quarter of buying from central banks, even though prices touched six-year plus highs in some currencies, including the greenback, in the quarter.

The world’s appetite for gold was 1,107.9 tonnes in the three months to September, 3% more than in the same quarter of last year, the WGC said in its latest Gold Demand Trends report.

That took demand in the first three quarters to 3,317.5 tonnes – the highest for any January-to-September period since 2016, it said.

With gold production static, the higher demand was met mostly from a rise in recycling that was encouraged by the rise in gold prices in the quarter.

“The continued surge into ETFs more than compensated for weaker demand elsewhere,” said the WGC’s head of market intelligence, Alistair Hewitt.

Holdings of gold-backed ETFs rose by 258.2 tonnes during the third quarter and touched a new all-time high, the WGC said.

Those six-year plus highs though again hit demand from consumer-facing sectors, especially jewellery and investment.

The WGC report said demand for jewellery at 460.9 tonnes in the third quarter was down 16% from the same period a year ago, while purchases of bars and coins halved to 150.3 tonnes, the WGC said.

This weakness from consumers showed up in falls in the forecast level of demand from the two biggest consumer markets for gold – China, and India.

The WGC said full-year consumption for 2019 in China is now estimated at 850-950 tonnes and in India at 700-750 tonnes, down from predictions of 900-1,000 tonnes and 750-850 tonnes respectively three months ago.

Technology demand for gold fell 4% as economic challenges remained, but the emerging demand for 5G infrastructure helped to slow the decline in the important electronics sector.

Central banks added 156.2 tonnes to their reserves in the third quarter, down sharply from July-September last year, the WGC said.

Although 38% lower than the same period last year, this is due to the third quarter of 2018 seeing the highest level of quarterly net purchases by central banks since 2010.

On a year to date basis, the WGC said a total of 14 central banks have reported adding to their gold reserves by one tonne or more. “This continues the trend of purchases by a broad spectrum of emerging market central banks – albeit with a small subset accounting for the bulk of the purchases,” the WGC noted.

“In Q3, Turkish gold reserves saw the largest increase, rising by 71.4t to over 380t. This included its largest-ever monthly purchase, with the central bank buying 41.8t in August. Total gold reserves in Turkey now stand at 385.5t, the highest level on record.

“Russia also continued to see it’s gold reserves swell, albeit, at a slower rate since the central bank began buying gold at a discount in May in May after adding 55.3t and 38.7t in Q1 and Q2 respectively, 34.9t tonnes were added in Q3. Gold reserves now total 2,241.9t, accounting for a fifth of total reserves and worth over US$100bn.”

“Chinese gold reserves also rose during the quarter, by a relatively modest 21.8t. The People’s Bank of China has reported higher gold reserves every month since it resumed buying in December 2018.”

The WGC said other net purchasers of one tonne or more during the quarter included the United Arab Emirates (4.9t), Qatar (3.1t), Kazakhstan (2.1t), Kenya (1.9t) and the Kyrgyz Republic (1.2t).

Reported net sales amounted to 28.7 during Q3. Net sales continued to be overshadowed by net purchases in Q3, with Uzbekistan (-18t), Guinea (-2.2t) and Mongolia (-1.1t) the only central banks to lower reserves by one tonne or more.

However, central bank demand over the first nine months of the year at 547.5 tonnes is still 12% up from last year and the WGC said full-year purchases would likely be between 600 and 700 tonnes — around steady oh last years more than 50-year high of 651.5 tonnes.

Supply of gold rose 4% to 1,222.3 tonnes in the third quarter thanks to surge in recycling to its highest level since 2016, the WGC said.

Mine production eased 1% to 877.8 tonnes from 883.3 tonnes. Recycling rose 10% to 353.7 tonnes.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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