Gold demand fell 7% year-on-year and 13% quarter-on-quarter to 831 t in the third quarter, primarily owing to outflows from gold-backed exchange-traded funds (ETFs), the World Gold Council’s (WGC’s) latest ‘Gold Demand Trends’ (GDT) report, shows.

Net gold ETF sales were relatively small at 27 t, but when compared with the pandemic-induced buying surge of a year earlier, the council says it was enough to place overall gold demand into a year-on-year decline, despite demand increasing in all other sectors.

WGC market intelligence manager Krishan Gopaul tells Mining Weekly that positive signs can, however, be found elsewhere, in spite of the overall decline.

Consumer demand in jewellery increased by 33% year-on-year to 443 t in the third quarter, demonstrating that the industry is recovering from the challenges it experienced in the last year, largely attributable to the Covid-19 pandemic and related movement restrictions.

Gold’s use in technology is also showing some greener shoots as it continues to improve from 2020’s lows as consumers continue to show an interest in obtaining new devices. Demand in this segment grew by 9% year-on-year and 4% quarter-on-quarter.

Central banks, meanwhile, added 69 t to their reserves during the quarter.

The bar and coin segment, meanwhile, also continued to see higher demand as it reported a fifth consecutive quarter of year-on-year gains, with 262 t bought in the third quarter, an increase of 18% year-on-year and 8% quarter-on-quarter.

Commenting on investor sentiments, Gopaul notes that bar and coin investment did see continued interest, in spite of price weakness during the quarter, which he says many investors used as a “gold buying opportunity”.

Overall demand declined by 7% year-on-year and 13% quarter-on-quarter to 831 t, while total supply was 3% lower year-on-year at 1 239 t, despite mine production having risen to its highest quarterly level on record.

The year-on-year drop in supply was owing to a sharp fall in recycling in response to lower gold prices.

ETFs, meanwhile, recorded a “bit of a turnaround” from last year, where it reported breaking levels of investment or inflows into gold ETFs.

“What we’ve seen this year is that has reversed into net outflows. What was key is that the level of net outflows are all relatively minor in comparison to the inflows that we saw last year,” Gopaul points out.

The level of gold holdings in global gold ETFs has remained “relatively steady” over the last six months, with no significant shifts.

In a separate release on October 28, WGC senior markets analyst Louise Street notes that the “relatively modest outflows from gold ETFs” have had a disproportionate effect on this year’s figures, outweighing positivity almost everywhere else across the board.

“The outflows themselves are part of a bigger picture. A year ago, investors were flocking to gold, seeking a hedge against the pandemic. And gold ETFs were particular beneficiaries of these flows, adding more than 1 000 t over the first three quarters of the 2020.

“So, while there has been selling by gold ETF investors this year, the outflows have been modest in comparison,” she comments, echoing sentiments shared by Gopaul.

Further, the gold price averaged $1 790/oz throughout the quarter – down from 2020’s third quarter high – but was above its three-year, five-year and ten-year averages.

Looking forward, Street says the council expects the full-year picture for gold demand to look very similar – strong consumer and central bank demand will mitigate losses from ETFs.

“Jewellery demand will continue to exceed last year’s levels, but investment demand in total will be weaker in 2021, despite healthy bar and coin demand.”

This, Gopaul says, was broadly in line with the council’s expectations of a recovery in jewellery and consumer elements.

“Where we may have been slightly surprised, is on the central banking side, where we expected central bank to remain purchasers, but it's very difficult to predict the level and I think we've seen a number of very large purchases throughout the year from a few central banks, which we wouldn't have been able to predict in advance,” he elaborates, reiterating that this demand was “even stronger than expected”.

He adds that the global gold market is seeing the recovery in many areas, but that it now has a more optimistic outlook, albeit cautiously so.

“There are still a number of factors which are uncertain in the market such as inflation and Covid, as well as the direction of interest rates that could change the dynamics in the market as well.

“But overall, I think it's a relatively positive outlook for the remainder of 2021 and, therefore, [the year] as a whole,” Gopaul states.