Gold demand above long-term average

Central bank gold purchases maintained a historic pace but fell short of the record set in Q3 2022. Jewelry demand eased slightly on high gold prices, while the investment picture was mixed.
 

The demand for gold

Gold demand, excluding OTC, was 8% higher than the five-year average in the third quarter, but down 6% year-on-year (1,147 tonnes). Including OTC and inventory flows, total demand was up 6% year-on-year to 1,267 tonnes.
Net central bank purchases were the third strongest quarter on record, according to data from the World Gold Council. In total, central banks bought 337 tonnes of gold, but this quarter fell short of the exceptional 459 tonnes of gold bought in the third quarter of 2012. In total, central bank demand is 14% higher year-on-year than in the same period last year, with a record 800 tonnes.
Investment gold demand was 157 tonnes in Q3, up 56% year-on-year but weak compared to the five-year average of 315 tonnes. Global gold ETFs lost 139 tonnes in Q3, a smaller outflow than Q3 last year (-244 tonnes).
Investment in bars and coins fell 14% year-on-year to 296 tonnes, but remained well above the five-year quarterly average of 267 tonnes. The decline was largely due to sharp declines in Europe.
OTC investment totaled 120 tonnes in the third quarter. This opaque source of demand provided solid support for gold prices for much of the third quarter, despite ETF outflows and declining net longs of COMEX futures. Jewelry demand weakened slightly year-on-year to 516 tonnes, down 2%, while jewelry production fell 1% to 578 tonnes due to inventory build-up. Consumer electronics demand fell 3% year-on-year to 75 tonnes.
 

Mine production and recycling

Mine production reached a record 971 tonnes in the third quarter, bringing total gold stock to 3.1 tonnes (+267% year-on-year). Recycling also increased 6% to 8 tonnes.
 
Gold demand weaker in Q3 y/y but healthy compared to 10-year average

 
Net central bank purchases are up 14% (year to date) compared to 2022. So far, central banks have purchased 800 tonnes of gold net, the highest amount ever in a nine-month period.
Demand for bars and coins is broadly flat compared to last year, driven by demand from the Middle East, Turkey and China. Gold ETFs, on the other hand, have seen an outflow of 189 tonnes so far this year and have recorded six consecutive quarters of negative demand.
 

Conclusion

Gold demand was weaker year-on-year in Q3 but healthy compared to the 10-year average. Central bank purchases are up 14% year-on-year and gold prices are also outperforming expectations. Normally, interest rate hikes would push gold prices down, but the conflict in the Middle East and current geopolitical uncertainties have pushed gold prices close to a new all-time high.
 
Disclaimer: The Silver Mountain does not provide investment advice and this article should not be considered as such. Past performance is no guarantee of future results.