Central banks shifted to net sellers for the first time in nearly a decade, with net sales estimated at just under 13 t for the third quarter, research from financial markets data company Refinitiv shows.
The shift was driven by an absence of purchases from Russia and China, as well as a significant rise in gross sales as countries continued the battle against Covid-19, which has taken a severe toll on the global economy, "with perhaps some also taking advantage of gold’s exceptional price performance in recent months", Refinitiv states.
Gold recorded a notable performance during the third quarter, soaring to an all-time high of $2 067/oz in early August, driven by escalating fears over the global economic downturn caused by the Covid-19 pandemic and massive stimulus measures introduced by central banks around the world in an attempt to lessen the impact.
Gold averaged $1 909/oz in the third quarter, up 27% from the previous three months and 30% above the level seen over the same period of last year.
Physical gold demand fell by 30% year-on-year, to 562 t in the third quarter as record high gold prices continued to take its toll on consumption.
Jewellery fabrication remained the worst affected segment, with global offtake contracting by 23% to a total of 314 t.
Despite many markets re-emerging from severe lockdown restrictions prevalent for most of the second quarter, demand remained poor across all the key regions. Countries continued to battle against the Covid-19 pandemic, which took a serious toll on the global economy, unemployment rates, household incomes and consumer demand.
Jewellery offtake in the world’s two largest gold consuming markets, China and India, dropped by 7% and 21%, respectively, battered by weak economic conditions, along with a record high gold price.
Refinitiv highlights that the rate of decline was less pronounced than the one seen in the prior two quarters as economies started to reopen after the lockdown.
Demand for gold in industrial applications recorded a 9% year-on-year drop in the three months to September, with double-digit percentage declines in dental and other industrial and decorative offtake.
However, demand from the electronics industry seems to have rebounded from the previous quarter, particularly from the automobile industry, as manufacturing resumed, although it remained some 9% down year-on-year.
For retail investment, which is the sum of physical bars and all coins, demand was marginally up year-on-year, as a strong rebound in official coin fabrication was largely offset by poor physical bar investment.
Official coin fabrication surged by 53% to nearly 72 t as fears around the Covid-19 crisis and the global market turmoil, along with the improved gold outlook, saw resurging interest among the retail investors, driving premiums to unprecedented levels.
Meanwhile, demand for gold bars slumped by 20% to just under 97 t, the lowest quarterly level since the financial crisis of 2008/9.
Refinitiv’s regional analysis, however, reveals contrasting findings between the East and the West. The 20% drop was largely attributed to a poor performance in Asia, where investment demand plunged by 59% over the three-month period.
Gold exchange-traded products (ETPs) witnessed another quarter of strong demand, estimated at over 280 t, with total inflows over the nine-month period estimated at over 1 000 t, up by 60% from the record yearly gain seen in 2009.
Mine production slipped by 2% to an estimated 862 t.
While the rate of decline is a lot less pronounced than in the previous quarter, many mines continued to operate at restricted capacity to maintain Covid-19 safety restrictions, notes Refinitiv.
Global scrap supply rebounded by 29%, with scrap flows rising in all the key regions, as many businesses returned to normal operating capacities, with supply further helped by record high gold prices.
With total supply rising by 10%, while demand remained subdued, the gold market registered an even bigger physical surplus in the third quarter.
“Looking ahead, the underlying macroeconomic conditions, such as economic headwinds, the low interest rate environment, ongoing tensions between the US and China, rising inflationary expectations and the looming second wave of Covid-19, remain highly favourable for gold in the medium to long term.
"It is in the near term that we are likely to see increased volatility, choppy trading and fluctuations in the stock markets and the gold price, particularly in the run up to US Presidential elections.
"While we may see gold consolidating or being caught up in a broader sell-off in the short term, gold should be the one to benefit from growing risks revolving around the second Covid-19 outbreak and the global economic turmoil and we may well see the yellow metal hit a fresh record before the year-end. The gold price is forecast to average $1 784/oz in 2020,” comments Refinitiv Precious Metals research director Cameron Alexander.