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Surge in ETF inflows supports Q3 gold demand growth

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Global gold demand grew modestly to 1,107.9t in the third quarter of 2019, a rise of 3 per cent on the same period last year, according to the World Gold Council’s latest Gold Demand Trends report, with a surge in exchange-traded fund (ETF) inflows outweighing softer demand elsewhere in the market.

Although central bank demand remained healthy, it was significantly lower than the record levels of purchases in Q3 2018. Jewellery demand, however, was hampered by the continued strength in the gold price, which hit a new multi-year high, as well as consumers being downbeat on the health of the global economy. 

Holdings of gold-backed ETFs hit a new all-time high of 2,855.3t in Q3. Holdings grew by 258.2t during the quarter, the highest level of quarterly inflows since Q1 2016. Accommodative monetary policies, along with safe-haven and momentum buying, were the main factors driving inflows into the sector.

Central banks added 156.2t to reserves in Q3, falling 38 per cent in comparison to the record Q3 last year. Q3 2018 recorded the highest level of quarterly net purchases in our data series. Y-t-d, central banks have purchased 547.5t on a net basis, 12 per cent higher y-o-y.

Jewellery demand was down 16 per cent in Q3 to 460.9t. 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 150.3t. Higher gold prices, across many key currencies, were the main cause of the decline to what is a multi-year quarterly low, as retail investors across the globe opted to defer purchases and lock-in profits.

Gold supply rose 4 per cent in Q3 to 1,222.3t. Growth was driven by a 10 per cent increase in recycling, to its highest level since Q1 2016, as the ongoing price rally continued to encourage selling back by consumers. Mine production was virtually unchanged y-o-y at 877.8t.

The gold price rally continued to reach new multi-year highs. The gold price rose 5 per cent during Q3, finding sustained support around US$1,500/oz. The driving factors behind this price momentum continued to be ongoing geopolitical tensions, a slowdown in economic growth, and lower interest rates from central banks across the globe.

Alistair Hewitt, Head of Market Intelligence at the World Gold Council, says: “Demand this quarter nudged higher as the continued surge into ETFs more than compensated for weaker demand elsewhere. Investors have increased their exposure to gold in response to low interest rates, negative yields, and geopolitical and economic uncertainty. Indeed, gold-backed ETF volumes hit an all-time high in September. But those same global trends, notably an economic slowdown in India and China coupled with the sharp increase in the gold price, mean many consumers have held off buying gold jewellery.

“Looking forward, we expect to see many of these trends continue into the end of the year as monetary policy is likely to become even more accommodative in the US and global political issues continue to weigh on sentiment.”

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