LAWRIE WILLIAMS: Gold demand picking up nicely despite ETF outflows - WGC
The latest Gold Demand Trends report for Q3 has been released by the World Gold Council (WGC) and it makes for encouraging reading for the gold investor. Particularly that is if he/she had been somewhat discouraged by seemingly constant news of ever continuing outflows from the world’s gold-backed ETFs in the light of lower gold prices virtually throughout the period. As is usual the data has been compiled mostly by London-based specialist consultancy Metals Focus on behalf of the WGC which has put its own stamp and interpretation on the figures.
Overall, the published data shows a healthy Q3 demand-wise, driven by stronger consumer and central bank buying, which helped gold consumption recover to pre-COVID norms. Gold demand in Q3 was estimated to be 28% higher year-on-year at 1,181 tonnes for the quarter. 9-month demand increased 18% versus the same period in 2021, also returning to pre-pandemic levels.
However, the LBMA recorded gold price did also fall by 8% during the quarter. The decline was largely a response to U.S. dollar strength as the U.S. Federal Reserve raised interest rates in its attempts to combat high inflation. In general the gold price in U.S. dollars moves in the opposite direction to dollar strength, although not necessarily so in other currencies which may also decline against the greenback. However, the WGC notes that the average gold price in Q3 was only 3% lower year-on-year in dollar terms, more closely aligning with the relative performance of demand and supply during the quarter.
The biggest gain in gold demand over the equivalent quarter in 2021 came from jewellery demand growth and central bank gold accumulations. The WGC estimates Q3 global jewellery consumption as reaching a robust 523 tonnes, increasing 10% year-on-year despite the deteriorating global economic backdrop. 9-month demand is looking slightly firmer (+2%) at 1,454 tonnes too. Central banks continued to add to their gold reserves as well, with purchases estimated at a quarterly record of around 399 tonnes. Prominent among these buyers will have been India and Turkey inter alia. Several others have been indicating that they would be increasing gold purchases by significant amounts, but these may not become apparent until, or unless, they report these increases to the IMF. There is a strong likelihood that Russia and China may also have been buying up some of their domestic gold production, but without reporting it to the IMF – Russia for strategic reasons and China because it has always tended to be secretive on such matters until it feels it is politically expedient to update the world on its latest gold holdings position.
But not all consumption sectors reported demand increases, although the above rises were more than sufficient to offset decreases in industrial and technology demand. Probably the more serious of these was the fall in investment demand with the aforementioned drop of 227 tonnes from outflows from global gold ETFs. This was more than sufficient to counter a 36% rise to 351 tonnes in gold bar and coin investment. The WGC also reckons that OTC demand contracted significantly during the quarter, echoing weak investor sentiment in ETFs and futures markets.
Demand in the technology sector also fell back by around 8% the WGC estimates. This was primarily put down to a fall in consumer demand for electronics due to the global economic downturn.
On the supply side, new mined gold output grew again, but only marginally for the sixth successive quarter. Peak gold is just about with us! Recycled gold output was slightly lower, but even so overall global Q3 gold supply was estimated to have increased by around 1% compared with a year earlier.
The WGC’s Gold Demand Trends findings may well have been partly responsible, at least, for the sharp change in investment sentiment towards gold late in the week. However, it probably should not have had a bearing on the apparent surge in equity and bitcoin prices, which puzzle us somewhat, given that signs still seem to be pointing to a descent into a global economic recession.