Q3 gold demand steady, up 6.2t on robust central bank buying

ROBUST CEN TRAL BANK buying remained a stabilising factor for gold demand in the third quarter (Q3) which hit 964.3 troy ounce, representing 6.2 troy ounce higher year-on-year, according to data from World Gold Council.

Reflecting the highest level of net purchases since 2015, central banks’ gold reserves grew 148.4t in Q3, up 22 percent year-on-year.

Bar and coin demand jumped 28 percent to 298 as retail investors took advantage of the lower gold price and sought protection against currency weakness and tumbling stock markets. Stock market volatility and currency weakness also boosted demand in many emerging markets. China, the world’s largest bar and coin market, saw demand rise 25 percent year-on-year while Iranian demand hit a five-and-a-half year high.

In jewellery, demand rose six percent in Q3 as lower prices caught consumers’ attention. A growing number of central bank buyers saw demand in this sector rise 22 percent year-on-year to 148.4 troy ounce, the highest level of quarterly net purchases since 2015. Also the dip in gold prices during July and August encouraged bargain hunting amongst pricesensitive consumers with growth in India and China outweighing weakness in the Middle East.

Demand for gold in technological applications rose in Q3 by one percent yearon-year, to 85.3t, indicating the eighth consecutive quarter of growth, primarily driven by gold’s use in electronics such as smartphones, servers and automotive vehicles.

Exchange-traded funds, (ETFs), a marketable security that tracks a stock index, a commodity, bonds, or a basket of assets shed 103.2t in the quarter under review and witnessed 116t decline when compared with inflows of 13.2t in Q3 ’17.

The decline marked the first quarter of outflows since Q4 2016.

Speaking on the aggressive buying trend of central banks, Aasif Hirani, director of Tradebulls Group in an analysis attributed the idea to protecting the countries’ reserve and minimising currency risks.

“Hungary, for instance, has announced increase in its gold holdings from 3.1 metric tonnes to 31.5 tonnes, meaning a massive ten-fold. But Hungary’s is not alone in gold holdings increase. India also had increased gold holdings in June-July.

Russia is leading the way when it comes to buying gold by central banks. This year, total of 264 tonnes of gold have been bought by central banks. Russian Central Bank added 26.1 tonnes in July alone. In 2017, Russia added more than 223 tonnes. It was the third consecutive year where Russia has increased its gold by more than 200 tonnes in a year,” Hirani explained.

“With that, Russia has taken over China to become the fifth largest gold holding country. China had surpassed Russia in this race way back in 2001.

To be fair, China has not officially announced its increases in gold holding since 2016. So, Russia on paper would be the fifth largest although we think China still has more gold holdings than Russia,” he added.