Gold demand steady through Q3, World Gold Council says

The following is an edited summary from the World Gold Council, based on its Gold Demand Trends Q3 2018 report. To access the full report, visit www.gold.org.

Global gold demand was steady in third-quarter 2018 at 964 tonnes, up just 6 tonnes 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 grew in India, China and across South-East Asia.

Bar and coin investors took advantage of the price dip, with demand up 28% year-on-year. 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 86 tonnes year-on-year. Iranian demand hit a five-and-a-half-year high at 21 tonnes.

Jewellery demand in third-quarter 2018 saw price-led, year-on-year 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 148 tonnes in third-quarter 2018, up 22% from last year. This is the highest level of net purchases since 2015, both quarterly and year-to-date. The quarter was notable due to a greater number of buyers.

Demand for gold in technological applications rose 1% in the third quarter compared to the same quarter in 2017, to 85 tonnes. This marks the eighth consecutive quarter of growth, driven by gold’s use in electronics such as smartphones, servers and the automotive industry.

ETF outflows reached 103 tonnes in third-quarter 2018, the first quarter of outflows since fourth-quarter 2016. North America accounted for 73% of the outflows, fuelled by risk-on sentiment, a strong dollar and price-driven momentum.

“The physical market responded quickly when the gold price breached US$1,200 per oz. in August, with retail investors around the world diving into the market, said Alistair Hewitt, head of market intelligence at the World Gold Council.

“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 … 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 gold supply decreased slightly in third-quarter 2018, down 2%, as de-hedging continued for a second consecutive quarter, and lower gold prices and economic improvement in the U.S. and Europe discouraged recycling. In contrast, mine production in the third quarter registered its sixth straight quarter of growth, up 2% to 875 tonnes, for 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 support more growth in 2018.