This is the lowest recorded global gold demand since the 878.9 t recorded in Q3 2009.
The World Gold Council believes this trend is mainly a result of slowed ETF inflows and weakened jewellery demand.
Gold-backed ETF inflows slow sharply
Although gold-backed ETFs had another quarter of positive inflows, growing by 18.9 t in Q3 2017, they fell far short of the 144.3 t influx in Q3 2016.
While investors continued to favour gold’s risk-hedging properties, the greater focus during the quarter was on surging stock markets.
The sector saw outflows in July, before modest inflows resumed in August and gained momentum in September. But inflows into these products continued to lag well behind 2016’s record levels. During the Q1 to Q3 period, inflows of 179.7 t were just one-quarter of the record inflows seen in the first nine months of 2016.
Gold jewellery demand deteriorates
Global gold jewellery demand, having improved during the first half of the year, deteriorated in Q3. Demand dipped to 478.7 t – the weakest third quarter in the World Gold Council’s 17-year data series.
Year-to-date demand of 1 457.3 t is a modest 3% ahead of 2016, which was itself a very weak year.
A softer quarter in the jewellery sector (-3%) accounted for 17 t of the y-o-y decline – driven by the relatively weak quarter in India, which has been disrupted by the changing tax regime and tighter regulation around jewellery transactions.
The introduction of the 3% Goods and Services Tax (GST) at the beginning of July was a contributing factor. As noted in the Gold Demand Trends Q2 2017 report, a large swathe of Indian consumers had pre-empted the introduction of GST by bringing forward their gold purchases to Q2. This left demand a little flat at the beginning of July.
Already suffering from weaker sentiment, the jewellery industry suffered a further blow when the government brought the gems and jewellery industry under the umbrella of the Prevention of Money Laundering Act (PMLA) in late August.
Recognising the difficulties placed on the industry by the regulation, the government lifted the PMLA from the gems and jewellery sector in early October. This decision was well-timed, coming just ahead of Diwali. Consumer sentiment improved dramatically, although reports suggest only average festive-season buying due to the continuing obstacle of GST.
Firming demand from banks, bar and coin investment
Demand from other sectors firmed. Central banks bought a healthy 111 t of gold (+25% y-o-y) while bar and coin investment strengthened by 17% (to 222.3 t), albeit from a low base.
Central banks collectively added 25% more to their gold reserves than the same period in 2016. This brings year-to-date demand from this sector to a healthy 289.6 t. Russia accounted for the bulk of purchases, with Kazakhstan and Turkey also increasing reserves.
Meanwhile, in terms of bar and coin investment, China made the biggest contribution to global y-o-y growth in bar and coin demand, with demand up 57%, reaching 64.3 t. China’s gold market is in relatively good shape. Year-to-date demand for 2017 has seen the second highest volume of bar and coin demand on record.
In contrast, India – the world’s second largest bar and coin market – was weak.
Gold supply drops
Total gold supply dropped by 2% in Q3 as both mine production and recycling contracted.
Mine production fell 1% y-o-y in Q3, which was also the fifth consecutive quarter of net dehedging, but year-to-date production hit 2 420 t by the end of Q3 and was the highest on record.
In terms of recycling, as with the previous two quarters, the y-o-y comparison for recycled gold was weakened by the strong performance of 2016. Third quarter recycled gold supply reached 315.4 t, nearly 6% lower than Q3 2016. Recycling continues to normalise after the spike in 2016: Q3 demand is almost directly in line with the five-year quarterly average of 314.8 t.