Gold demand plummets as central banks, consumers hold off — WGC

Global gold demand dropped by 10% to 992.8 tonnes in the third quarter of 2016 as central banks and jewellery buyers held off on purchases during the period data published Tuesday by the World Gold Council shows.

Investment in the precious metal, however, went the opposite way. Total demand from investors jumped up 44% to 336 tonnes, with ETP inflows accounting for 146 tonnes.

The third successive quarter of inflows into ETPs, which were dominated by European funds, were predominantly driven by economic and geopolitical uncertainty ahead of the US election and also in Europe after the Brexit referendum decision and in advance of various European elections next year, the WGC said.

Gold demand plummets as central banks, consumers hold off — WGC

Consumer demand for jewellery, coins and bars, dropped by a quarter as high prices slowed down acquisitions from top consumers China and India.

Chinese bought 22% less gold due to economic uncertainty and evolving taste while Indians acquired 28% less in the period, driving global jewellery demand down by a fifth to its lowest third-quarter total in five years, at 493.1 tonnes.

Higher gold prices encouraged consumers to recycle their gold, generating more than 341 tonnes of supply this quarter, up 30% year-on-year.

But it looks like the present quarter 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,” Alistair Hewitt, WGC's head of market intelligence said.

“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,” he noted.

Total mine supply reached 832 tonnes this quarter, down 4% year-on-year from 866 tonnes. The WGC attributed the relative stability to the cost-cutting programmes that have been a feature over the past few years.

As well, the rising gold price also encouraged consumers to recycle their gold, generating more than 341 tonnes of supply this quarter, up 30% year-on-year.

This was particularly prevalent in India, where consumers cashed in their holdings, swelling the amount of recycled gold in the region to 39 tonnes, its highest level since the fourth quarter of 2012.

The council warned that India's demand for the precious metal could fall as much as 24% in 2016 to the lowest level in seven years on the back of higher prices and increased smuggling.

Lower demand from the world's No.2 gold consumer could hurt global spot prices that have risen a fifth so far in 2016, but help the South Asian country to reduce its trade deficit, WGC said.