Gold has benefitted in the fourth quarter of 2018 from investors seeking safe-havens, the latest GFMS Gold Survey, which Refinitiv released on Wednesday, states.
Renewed interest from professional investors and a shift in the purchasing behaviour of emerging market central banks have compensated for a decline in the retail investment and jewellery segments.
The report notes that activity in the professional investment sector gained traction in the final quarter of 2018, with a short covering rally in net managed money positions pushing up net short positions into net long positions for the first time since July.
Renewed exchange-traded fund (ETF) interest continued on from the previous quarter, recording inflows of 114 t, resulting in total ETF holdings reaching 2 321 t in the fourth quarter – its highest level since June 2018.
“This pickup in demand on a year-on-year basis is even more evident, with total inflows an impressive 106 t higher than the same period a year ago, with the value of total inflows at $12-billon.”
Official sector purchases rose to their highest quarterly level this century, following renewed purchases from emerging market countries. The official sector recorded net purchases of 196 t in the fourth quarter, bringing total estimated net purchases for the year to 571 t.
“A shift in central bank behaviour, in which further emerging market countries are seeking to build their gold reserves, has resulted in some countries reporting their first transaction in 2018 since the turn of the century,” the report states.
Further, China, which has not reported a change in its gold holdings since October 2016, reported a 10 t increase in its holdings in December, likely owing to in increased weakness in the Asian equity market driven by trade tensions with the US.
The strong performance of the professional and the official investment sectors compensated for the weaker demand from the retail investment and jewellery sectors.
Refinitiv’s GFMS team noted that retail demand declined by 3% to total 296 t in the quarter.
“A strong US dollar and improving outlook for the US economy resulted in North American demand slipping by a significant 19%, with the US recording a decline of 28% year-on-year.”
Meanwhile, lacklustre retail investment demand across South America and Asia over the period had the regions recording declines of 44% and 8%, respectively.
Soft Indian demand – which fell by 31% year-on-year – was likely owed to volatile gold-denominated price moves, combined with average prices over the quarter rising by 7% year-on-year.
Chinese demand remained weak falling by 12%, while Europe and Africa were the only two regions to record an increase in retail investment, with African demand jumping by an impressive 48% on the back of strong coin demand, while European demand was boosted by concerns over internal politics across the Eurozone, weakening trade and increasing protectionism policies. European demand rose by 10% to 80 t, its highest level since the fourth quarter of 2016.
Globally, jewellery consumption and fabrication suffered in the fourth quarter, falling by 3% and 2%, respectively.
The GFMS team notes that turbulent European politics and cooling trade resulted in consumption across the region falling by 14%, with fabrication dropping by 7%. This was largely driven by weakness in the UK, which recorded its lowest level of production this century.
The report notes that North American fabrication and consumption increased by 17% and 41%, respectively, owing to a rising dollar and improving economy, while weak Asian demand – which accounts for more than 80% of total global jewellery fabrication and consumption and resulted in declines of 2% and 5% respectively – followed a slowdown in economic performance.
Meanwhile, global mine production increased by 27.7 t, or 1.2%, year-on-year in the first nine months of 2018. Indonesia achieved a 32.4% increase in output primarily owing to higher grades. Australia (8.3%) and Canada (9.6%) also achieved significant increases.
On the other hand, the largest declines were recorded in China, South Africa and the US – a combined fall of 56.7 t.
Average total cash costs rose by 7.7% year-on-year in the third quarter to $722/oz, while average all-in sustaining costs increased by 4.5% year-on-year to $924/oz.