LAWRIE WILLIAMS: Gold: ETF inflows and central bank purchases offset weakness elsewhere
While the quarterly Gold Demand Trends reports from the World Gold Council (WGC) are often slightly outdated by the time they are published, they always contain some exceedingly interesting and informative data which is still relevant to the overall position of gold in terms of supply and demand for the yellow metal. The latest such report, covering the July to September quarter, recently published, is no exception.
According to the WGC the highlighted take-aways from the latest report, with clickable links to the relevant areas of the report, are as follows:
- Holdings in gold-backed ETFs hit a new all-time high of 2,855.3 tonnes in Q3. Holdings grew by 258.2 tonnes during the quarter, the highest level of quarterly inflows since Q1 2016. Accommodative monetary policies, along with safe-haven and momentum buying, drove demand.
- Central banks added 156.2 tonnes to reserves in Q3. Q3 2018 was the highest quarter of net buying in WGC records. Y-t-d, central banks have purchased 547.5 tonnes on a net basis, 12% higher y-o-y.
- Jewellery demand was down 16% to 460.9 tonnes in Q3. Weak consumer sentiment due to continued geopolitical and economic uncertainty, coupled with substantially higher gold prices, dented jewellery purchases in all major markets.
- Bar and coin investment halved in Q3 to 150.3 tonnes. Higher gold prices across many key currencies were seen as the main cause of the decline to a multi-year low, as retail investors across the globe opted to defer purchases and lock in profits.
- Gold supply rose 4% in Q3 to 1,222.3 tonnes. Growth was driven by a 10% increase in recycling – to its highest level since Q1 2016 – as the ongoing price rally continued to encourage selling back by consumers. Mine production of 877.8 tonnes was virtually unchanged y-o-y.
- The gold price continued to rally, reaching new multi-year highs. The gold price rose by 5% during Q3, finding sustained support around US$1,500/oz. The primary factors behind this price momentum continued to be ongoing geopolitical tensions, concerns of a slowdown in economic growth, lower interest rates and the level of negative yielding debt.
All in all something of a mixed bag erring on the positive side as long as the levels of ETF purchases and central bank buying can be maintained. So far they have shown little signs of a slowdown.
None of the above will come as any surprises to readers of my articles on the Sharps Pixley site and I still remain positive on the overall direction for the gold price this year and next, despite a recent sharp drop and only partial recovery.
Speaking of which, these price take-downs particularly suit those who do not wish to see a rising gold price. This includes many governments and central banks which see a rising gold price as an overt condemnation of their economic policies and a directly visible contradiction of the positive picture they try to present the general public. It is perhaps worrying for all of us that there are close links between the various regional Feds and the major bullion banks which hold major shareholdings in them.
We are a little confused by the recent sharp gold price fall which appeared to be based on a positive non-manufacturing confidence index release in the U.S. coupled with some somewhat spurious comments on the U.S./China trade talks. The non-manufacturing index rise was in direct contrast to some other much more negative data on the manufacturing sector and the real state of the U.S. economy which may not be quite as positive as the Trump Administration would have people believe. After all an election year is coming up.
Re the U.S./China trade talks, we feel the announced Phase 1 ‘trade deal’ is really something of a non-event and is purely designed to present a positive picture at both ends without any progress at all on the major differences between the two superpowers. The ‘trade dispute’ will likely run and run and once the general public realises that there is likely no end in sight for the principal issues at stake, gold will likely receive a sharp boost. But disinformation - fake news as defined by President Trump - is rife from all sides, so pressures will likely remain as long as the Fed and the U.S. Administration can continue presenting positive pictures.
07 Nov 2019