Central Bank Buying Keeps Gold Glittering On

By Glenn Dyer | More Articles by Glenn Dyer

Gold continues to hang in thanks to stronger prices driven by those fears about US regional banks, higher interest rates hitting consumer spending and confidence.

Supply looks to be edging higher thanks a slight improvement in production and those higher prices again boosting gold recycling for a second quarter in a row.

All this should be pleasing to gold bugs (AKA investors, according to the World Gold Council’s (WGC) March quarterly update which said, “We continue to see healthy upside for investment this year, while the picture for fabrication (jewellery and technology) is more muted.”

“Further robust central bank buying is expected, albeit below 2022’s record. Modest growth is likely in both mine production and recycling.”

Council data shows global gold demand fell in the first three months of 2023 as large purchases by central banks and Chinese consumers offset reduced investor buying.

Demand amounted to 1,081 tonnes, down 13% from the first quarter of 2022, the WGC said in its latest examination of trends in the global gold market.

The WGC said that when Over the Counter (OTC) purchases are included, total gold demand was up just 1% year on year to 1,174 tonnes. Stronger demand from   OTC investors offset weakness in other areas of the market, particularly in demand from the technology sector which again fell in the quarter.

But central banks again helped underwrite demand for the precious metal in the quarter, purchasing a record 228 tonnes (for the first quarter of a year), up from just 83 tonnes in the same period last year, said the report.

While a record, it’s below the rate needed for central bank buying to get near 2022’s 1,136 tonnes. With the world price above $US2,000 a tonne for most of the past six weeks, there’s every chance price will see central bank buying fade, especially as economic activity slows in coming months.

The WGC said the central banks of Singapore (an extra 69 tonnes), China (54 tonnes in the quarter) and Turkey (30 tonnes) were the top buyers, while the Reserve Bank of India added 7 tonnes to its reserves during the January-March quarter.

China in fact has now revealed purchases in each of the last six months. That data shows up in China’s global reserves reports each month – 18 tonnes bought in March for example and just over 8 tonnes in April.

That took total purchases for the six months to nearly 128 tonnes (120 tonnes in the five months to March), a significant upturn in demand seeing there was a long hiatus up to the resumption of gold purchases in November.

Bar and coin investment gained 5% year on year to 302 tonnes, concealing some large regional variations (strong in the US, for example). The WGC noted that this was the third consecutive quarter of more than 300 tons worth of bar and coin purchases, the first time this has happened since 2013.

In contrast, net negative demand for gold Exchange Traded Funds (ETFs), although a modest outflow of 29 tonnes, was down sharply from a year ago because of the high inflows seen in the first quarter of 2022.

The WGC pointed out that much of this outflow came in January and February, with March seeing a strong bump in gold demand from ETFs on the back of the regional banking crisis in the US–a trend that has continued into April as prices firmed above $US2,000 an ounce for most of that month.

Global jewellery consumption was virtually flat at 478 tonnes – a function of consumer resistance to the rising prices. Jewellery fabrication exceeded consumption as stock building added just over 30 tonnes to global inventories.

Gold use in the technology sector continued to suffer from the challenging economic climate. Demand slumped to 70 tonnes.

The World Gold Council said that was the second lowest quarter in its data series back to 2000 and points to the fall in demand from the consumer electronics sector and from other areas of technology.

Trade and other data say there’s been a drop in the export and import of computer chips and consumer electronics from China, South Korea and Taiwan especially in recent months.

A modest 2% growth in both mine production (to a record for the first quarter) and a 5% jump in recycling saw a marginal rise in March quarter total gold supply to 1,174 tonnes.

Early data suggests that mined supply hit that first-quarter record at 856 tonnes, while recycled supply rose to 310.4 tonnes.

Much of the mine increases came from Mongolia, Brazil and South Africa but not all companies had reported production and sales data for the quarter.

“The uptick in recycling was largely a function of higher gold prices,” the WGC confirmed – a portent of things to come?

Highlights from the demand side include a 13 year high for American demand for gold bars and coin in the March quarter – 32 tonnes which the WGC remarked was “driven primarily by recession fears and a flight-to-safety amid the banking turmoil.”

Chinese demand regained ground as the economy re-opened from 2022’s harsh lockdowns and jewellery and gold sellers could again take walk-in customers. Demand reached 198 tonnes in the first quarter, a rise of 16%.

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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