Gold demand drops 10% as jewellery buyers, central bankers shy away: WGC

Reuters: Falling consumer demand and a halving of central bank purchases resulted in a 10% drop in gold buying in the third quarter, data from the World Gold Council showed on Tuesday, despite a rise in investment.

Added to a 4% rise in supply, that pushed the overall quarterly gold market surplus to 166.3 tonnes, its highest level since the beginning of 2009, the WGC said in its latest demand trends report. Consumer demand, for jewellery, coins and bars, tumbled by a quarter as high prices deterred buyers in the leading markets for physical gold consumption, China and India.

Chinese consumers bought 22% less gold as economic uncertainty and changing tastes dented their appetite for the metal, while Indian buying fell 28%. That helped push global jewellery demand down by a fifth to its lowest third-quarter total in five years, at 493.1 tons.

However, lower prices and festive demand should improve buying this quarter, the WGC said.

“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,” the WGC’s head of market intelligence Alistair Hewitt said.

“Price expectations have always been a key trigger for gold purchases and consumers responded quickly to the price drop in early October.”

High prices prompted some Indian gold holders to sell their gold back onto the market meanwhile, with gold recycling in the country reaching its highest level in nearly four years.

The appetite for gold among Western investors remained positive, with inflows into exchange-traded products reaching 146 tons, against outflows of 63 tons a year before. Inflows were down from 237 tons in the previous quarter, however.

Concerns over geopolitical risk in the aftermath of Britain’s vote to leave the European Union and ahead of this week’s U.S. elections boosted the metal’s appeal as a haven from risk. The Brexit vote sparked a wave of activity among retail consumers, as some bought gold as a hedge against uncertainty, while others took advantage of higher prices to sell.

“On the face of it the 11% decline in UK bar and coin demand seems to indicate that investors in that market were inactive. This was far from the case,” it said.

“Gross levels of both buying and selling were elevated during the quarter, indicating a heightened level of activity in trading gold bars and coins. The two sides largely cancelled each other out, creating net demand of just 2.4 tons.”

Total investment demand was up by 44% to 336 tons. However, that could not offset the drop in other areas of buying, and demand overall was down 10% at 993 tons.

Central banks bought just 82 tons of the metal in the third quarter of the year, down from 168 tons in the same period last year. Official sector buying in the first nine months of the year was at the weakest level in any year since 2010.

One in 10 central banks surveyed by the WGC recently said they were planning to reduce reserves in the next three years. A third were planning no change in reserves, and 56% were planning to increase holdings.

On the other side of the market, supply rose as a 30% jump in recycling offset a 4% drop in supplies from mines, which eased to 832 tons.