5 Highlights of the World Gold Council’s Q3 Demand Trends Report

The World Gold Council’s (WGC) Gold Demand Trends report for Q3 2018 has been released, and it shows global gold demand was steady in the third quarter, with total demand coming in at 964.3 tonnes, up 6.2 tonnes year-on-year.

This increase in demand was heavily supported by a 28-percent jump in bar and coin demand and a 22-percent year-on-year climb in central bank gold reserves.

However, demand was offset by sharp outflows in gold-backed ETFs. Read on to learn more about what the WGC says in the report.

1. Investment in gold bars and coins climbed

Global bar and coin demand rose to 298.1 tonnes, rising 28 percent year-on-year and 20 percent from Q2.

“The world’s largest bar and coin market saw significant growth. Demand in China shot up 25 percent year-on-year and quarter-on-quarter to reach 86.5 tonnes in Q3,” the WGC stated.

The yellow metal price drop that took place during the third quarter encouraged Chinese investors to purchase bars and coins.

India’s bar and coin demand also made slight gains on the back of falling gold prices and reached 34.4 tonnes in Q3. However, demand remains below its three-year average of 43.3 tonnes.

The Middle East bar and coin market continued to rally, climbing 144 percent year-on-year and 28 percent quarter-on-quarter when demand reached 27.8 tonnes — its highest level since Q2 2013.

Demand in Turkey was down after the Turkish lira gold price rose in August causing net new buying to fall to 4.6 tonnes, a 69-percent drop from this time last year.

Elsewhere, European demand was up 10 percent year-on-year and US demand shot up 74 percent year-on-year.

2. Jewelry demand was up 6 percent

In Q3, jewelry demand was up 6 percent year-on-year, rising to 535.7 tonnes.

The WGC noted, “India, China and several South-East Asian markets saw respectable year-on-year increases, while demand in Iran, Turkey and the UAE fell significantly.”

Following two consecutive quarters of year-on-year declines, jewelry demand in India grew 10 percent to land at 148.8 tonnes.

“Q3 demand was boosted in early August when the local gold price dipped below Rs 29,700/10 grams — the lowest level since January,” the report stated.

Jewelry consumption in China rose 10 percent compared to Q3 2017, posting 174.2 tonnes.

“Demand benefitted from the Qixi and Mid-Autumn festivals that took place during the quarter,” the WGC noted.

Middle Eastern demand fell 12 percent in the third quarter to 37.7 tonnes, in part because of geopolitical stress, while Iranian demand plummeted 60 percent year-on-year and Turkish demand slipped 31 percent from this time last year.

In the UAE, jewelry demand fell to 6 tonnes, a 13 percent year-on-year decrease, yet Saudi Arabia posted jewelry demand gains of 7 percent year-on-year to 11.9 tonnes.

Finally, US demand grew 4 percent to 28.3 tonnes, European demand was up 1 percent from this time last year at 12.7 tonnes and growth was seen across most for east and south-east Asia.

3. Central banks net purchases highest since 2015

Central bank net purchases were up 22 percent year-on-year at 148.8 tonnes, reaching the highest level of quarterly demand since the fourth quarter in 2015.

Central banks in Russia, Turkey and Kazakhstan joined, which significantly increased demand.

The WGC stated, “Q3’s 92.2 tonnes increase was Russia’s biggest quarterly net purchase on record. Russian reserves amounted to over 2,000 tonnes for the first time, equivalent to 17 percent of total reserves.”

“Net purchases [in Turkey] (excluding Reserve Option Mechanism holdings) grew by 18.5 tonnes in Q3, a quarter that saw the lira weaken by 25 percent. This brought official holdings to 258.6 tonnes,” the council added.

As for Kazakhstan, it posted net purchases of 13.4 tonnes for the quarter and brought total reserves to 335.1 tonnes.

Elsewhere, the Reserve Bank of India increases its buying throughout the third quarter, increasing reserves by a further 13.7 tonnes, bringing the year-to-date purchases to 21.8 tonnes.

European central banks also began purchasing the yellow metal during Q3. The National Bank of Poland boosted its overall level of reserves from 13.7 tonnes to 116.7 tonnes while Hungary ramped up its gold reserves ten-fold — from 3.1 tonnes to 31.5 tonnes, its highest level since 1990.

[T]he Mongolian central bank bought 12.2 tonnes in the first eight months of this year, matching its purchasing to the same period of last year and buying more than half of its full-year target,” the council noted.

4. Gold use in technology grew

Gold used in technology grew 1 percent year-on-year to 85.3 tonnes in Q3.

“This uptick was again driven by strong electronics demand, particularly in the PCB and memory sectors, offsetting a surprising decline in wireless demand,” the WGC notes.

The report revealed that the yellow metal was used in electronics grew 2 percent year-on-year to 68.5 tonnes in the third quarter.

Despite an overall increase in demand, recent growth in wireless demand came to a close in Q3.

“Vertical cavity surface emitting lasers (VCSELs) – one of the key technologies in the sector – experienced a considerable decline in demand because of slower than expected penetration of smartphone face identification functionality, leading to falls of 5-8 percent,” the WGC noted.

The LED sector experienced a 5-8 percent year-on-year drop in demand due to continuing transition to gold-free chip scale packaging (CSP).

Finally, the WGC noted, “[t]he traditional technology hubs of Mainland China and Hong Kong, Japan and the US all registered growth in gold volumes in Q3, with 1.9 percent, 1.0 percent and 3.0 percent respectively.”

5. Significant outflows from gold-backed ETFs

Global gold-backed ETFs saw quarterly outflows for the first time since the fourth quarter in 2016 and assets under management (AUM) fell by 103.2 tonnes over the quarter.

“This represents a 116 tonnes decline when compared with inflows of 13.2 tonnes in the same period last year. While flows decelerated towards the end of the quarter, September nonetheless was the fourth consecutive month of outflows, creating the longest period of monthly outflows since 2014,” the WGC stated.

“This wiped out gains made earlier in the year: by the end of Q3, global gold-backed ETFs had shed 42 tonnes,” the council added.

The group notes that North America accounted for 73 percent of outflows in Q3 (around 75 tonnes) and almost 90 percent of outflows over the course of the year so far.

In other parts of the world, European outflows came in at 14 tonnes and China-listed ETFs also saw outflows in Q3, losing 12.2t over the quarter.

Supply

Finally, on the other side of the market, production growth was outweighed by elevated de-hedging and lower recycling, which caused supply to dip 2 percent year-on-year to 1,161.5 tonnes during Q3.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.