Exchange-traded products drive gold demand in Q3 2016

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Global gold demand reached 993 tonnes (t) in the third quarter of 2016, a fall of 10% compared to the same period last year according to the World Gold Council’s latest Gold Demand Trends report.

Net inflows into exchange-traded products (ETPs) helped drive a sharp increase in investment demand, but this was not enough to offset falls in other areas, notably jewellery and purchases by central banks.

Total investment demand rose 44% to 336t, with ETP inflows accounting for 146t, as investors continued to build up their strategic allocations to gold. The third successive quarter of  inflows into ETPs – which were dominated by European funds – were predominantly driven by ongoing economic and geopolitical uncertainty, ahead of the US election [today] and also in Europe post the Brexit referendum decision, and  in advance of various European elections next year.

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These flows were further supported by relatively expensive equity valuations and low-yielding sovereign bonds. By contrast, bar and coin demand totalled 190t in Q3, down 36% year-on-year.

Alistair Hewitt, head of market intelligence at the World Gold Council, comments:“We continued to see flows into gold-backed ETPs in Q3, taking year-to-date inflows at the end of September to 725t. Institutional investors have looked to hedge against uncertainty stemming from geopolitical risk, including Brexit, the US Presidential race and the potential impact of elections in France and Germany next year. In addition, negative interest rates – a theme ever present this year – continued to underpin institutional demand.”

Both China and India, the world’s leading gold markets, experienced a drop in consumer demand this quarter, of 22% and 28% respectively. In China, ongoing economic uncertainty contributed to a softening in sentiment towards the precious metal, which was magnified by high gold prices and changing consumer behaviour. In India, more stringent government policies, high gold prices and a squeeze on disposable rural incomes combined to dampen consumer sentiment. These were key factors in total jewellery demand falling 21% year-on-year to 493t.

Alistair Hewitt adds: “The core physical markets of India and China continued to suffer under high prices and squeezed incomes in Q3, but it looks like Q4 may be better. Price expectations have always been a key trigger for gold purchases and consumers responded quickly to the price drop in early October. And in the case of India, the first healthy monsoon in three years will boost rural incomes, supporting demand during the festive and wedding season.” 

Total mine supply reached 832t this quarter, down 4% from the 866t seen in the same quarter last year. The relative stability can be attributed to the cost cutting programmes that have been a feature over the past few years. The rising gold price also encouraged consumers to recycle their gold, generating more than 341t of supply this quarter, up 30% on the same period last year. This was particularly prevalent in India, where consumers cashed in their holdings, swelling the amount of recycled gold in the region to 39t, its highest level since Q4 2012.

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