WGC: Gold Demand Rises In 3Q As Lower Prices Spark Bar, Coin, Jewelry Buying

By Paul Ploumis (ScrapMonster Author)

November 12, 2015 05:11:12 AM

(Kitco News) -A decline in gold prices back in mid-summer sparked increased investment that sent global gold demand to 1,120.9 tonnes in the third quarter, a rise of 8% from the same period a year ago, the World Gold Council reported Thursday.

Bar and coin purchases were higher, as well as jewelry consumption, said the WGC’s quarterly report on gold demand trends. Meanwhile, central-bank demand posted the second-highest level on record, said the market-development organization for the gold industry.

“If you look at the consumer/long-term investor base, the dip in the price that gold experienced early in the quarter actually supported the market,” said Juan Carlos Artigas, director of investment research for the World Gold Council.

Spot gold fell back to roughly $1,074 an ounce back on July 20. This was the lowest price in more than five years.

However, against this backdrop, global investment demand rose 27% during the third quarter to 229.7 tonnes, the WGC said. Bar and coin purchases were up by a third from the year-ago quarter, coming in at 295.7 tonnes, with Western markets, in particular, showing a surge. This far exceeded withdrawals from gold exchange-traded funds, which posted outflows of 65.9 tonnes.

“It was an opportunity for investors who see gold as a long-term asset to take advantage of a lower price to make further allocations into their holdings, a positive sign,” said Artigas.

In the U.S., bar and coin demand reached its highest level in five years, rising 207% to 32.7 tonnes. Demand in Europe, with ongoing worries about Greece’s debt crisis and Russia-Ukraine tensions, climbed by 35% to 60.9 tonnes. Chinese investment demand grew by 70% to 52.3 tonnes, initially stimulated by price weakness but further fueled by mid-August foreign-exchange reform, the WGC said. Indian investment posted the first increase since the third quarter of 2013, rising 6% year-on-year to 57 tonnes.

Meanwhile, global jewelry demand in the July-September period rose 6% to 631.9 tonnes. Consumers in India, China, the U.S. and the Middle East took advantage of lower prices in July and August, the WGC said. In the key gold-buying nation of India, festival-related purchases were brought forward, resulting in a 15% increase in jewelry demand to 211.1 tonnes over the period.

Central banks collectively were net buyers for the 19th consecutive quarter, with purchases by official sector reaching 175 tonnes, almost matching the record high of 179.5 tonnes in the third quarter of 2014, the WGC reported.

“Central banks continued to use gold as a source of diversification for foreign(-exchange) reserves,” Artigas said.

The use of the yellow metal for technology fell 4% to 84.3 tonnes.

Global Supply Rises On Increased Hedging

Global supply edged up 1% year-on-year to 1,100.1 tonnes, the WGC said. Mine production contracted slightly and recycling continued its decline, but this was more than offset by what Artigas termed a “modest” increase in producer hedging.

Mine production fell 1% year-on-year to 827.8 tonnes, with the WGC noting this figure is provisional since some companies have not yet reported their third-quarter results. Output has been curtailed as prices fell toward the cost of production, although miners have been trying to reduce expenses and have been helped by lower energy costs.

“Mine production has felt the impact of opposing forces in recent years; declining output from older, historic mining districts, particularly in South Africa and the U.S., has contrasted with the positive incremental impact on production from new mines coming on stream,” the report said. “Up until recently, the latter has more than offset the former, allowing for continued growth in mine production. However, many newer mines are now at or near their full potential and therefore growth rates are slowing, making further production gains increasingly difficult.”

While hedging occurred in the third quarter, it remains light overall, compared to years past. Net dehedging of 10 tonnes in the second quarter was followed by 20 tonnes of net hedging in the third quarter. Hedging tends to be tied to specific mines rather than a widespread industry phenomenon, Artigas explained. In fact, he added, for the year to date, hedging is in negative territory.

“In spite of these recent positions, supply from this category will likely remain limited owing to shareholders continued predilection for companies not to engage is substantial hedging,” the report said.

Meanwhile, recycling of gold fell to its lowest quarterly figure since 2008. So-called scrap supply was down 6% year-on-year to 252.3 tonnes.

Meanwhile, recycling of gold fell to its lowest quarterly figure since 2008. So-called scrap supply was down 6% year-on-year to 252.3 tonnes.

“Recycling is the mirror image of jewelry,” Artigas said. Whereas lower prices prompts consumers to buy jewelry that contains the precious metal, people who already hold gold are likely to keep it rather than sell. Further, with the economy recovering, gold holders are less likely to “sell their savings” in order to fund living expenses, he added

Courtesy: Kitco News