Central Banks become net sellers of gold

Central banks became net sellers of gold for first time in a decade in Q3 2020 as the pandemic continues to rage, a study by the GFMD team at Refinitiv has revealed. The study also highlights that gold demand falls by 30% year-on-year and jewelry fabrication remained the worst impacted sector, dragged lower by the economic impacts of the pandemic and record gold prices.

The study says the net sales of gold by central banks was estimated at just under 13 tonnes for the third quarter. “The shift was driven by an absence of purchases from Russia and China, as well as a significant rise in gross sales as countries continued the battle against covid, which has taken a severe toll on the global economy, with perhaps some also taking advantage of the gold’s astonishing price performance in recent months,” it says.

SPECTACULAR PERFORMANCE

Refinitiv says gold recorded a spectacular performance during the third quarter, soaring to an all-time high of $2,067/ oz in early August, driven by escalating fears over the global economic downturn caused by the pandemic and massive stimulus measures introduced by central banks around the globe in an attempt to lessen the impact. The metal averaged $1,909/oz in the third quarter, up by 27% from the previous three months and 30% above the level seen over the same period of last year.

The study says physical gold demand fell by 30% yoy, to 562 tonnes in Q3 as record high gold prices continued to take its toll on consumption. “Jewelry fabrication remained the worst affected segment, with global offtake contracting by 23% to a total of 314 tonnes. Despite many markets re-emerging from severe lockdown restrictions prevalent for most of Q2, demand remained poor across all the key regions. Countries continued to battle against the pandemic, which took a serious toll on the global economy, unemployment rates, household incomes and consumer demand. Jewelry offtake in the world’s 2 largest gold consuming markets, China and India, dropped by 7% and 21%, respectively, battered by weak economic conditions, along with a record high gold price. It is worth adding, however, that the rate of decline was less pronounced than the one seen in the previous two quarters as economies started to re-open after the lockdown,” observes the study.

INDUSTRIAL APPLICATIONS

Demand for gold in industrial applications recorded a 9% year-on-year drop in the 3 months to September, with doubledigit percentage declines in dental and other industrial and decorative offtake, according to the study. “That said, demand from the electronics industry seems to have rebounded from the previous quarter, particularly from the automobile industry as manufacturing resumed, although remained some 9% down yoy,” it adds.

Demand for retail investment, which is the sum of physical bars and all coins, was marginally up yoy, as a strong rebound in official coin fabrication was largely offset by poor physical bar investment. Official coin fabrication surged by 53% to nearly 72 tonnes as fears around the crisis and the global market turmoil, along with the improved gold outlook saw resurging interest among the retail investors, driving premiums to unprecedented levels, says the study.

The study also reveals that Gold ETPs witnessed another quarter of strong demand, estimated at over 280 tonnes, with total inflows over the nine-month period estimated at over 1,000 tonnes, up by 60% from the record annual gain seen in 2009.

Mine production slipped by 2% to an estimated 862 tonnes. And with total supply rising by 10%, while demand remaining subdued, the gold market registered an even bigger physical surplus in the third quarter.

FAVOURABLE FOR GOLD

Cameron Alexander, Director of Precious Metals Research at Refinitiv, says looking ahead, the underlying macroeconomic conditions such as economic headwinds, the low interest rate environment, ongoing tensions between the United States and China, rising inflationary expectations and the looming second wave of covid, remain highly favourable for gold in the mediumto-long term. He adds: “While we may see gold consolidating or being caught up in a broader sell-off in the short term, gold should be the one to benefit from growing risks revolving around the second COVID19 outbreak and the global economic turmoil and we may well see the yellow metal hit a fresh record before the yearend. The gold price is forecast to average $1,784/oz in 2020.”