Weak investment demand for gold ETFs dominates the market in third quarter - World Gold Council
(Kitco News) - Disappointing investment demandcontinues to dominate the gold market as the World Gold Council reported a 7%decline in demand for the precious metal in the third quarter.
In its latest Quarterly DemandsTrends report, published Tuesday, the WGC said that total gold demand betweenJuly and September dropped to 831 tonnes.
"This drop was almostexclusively driven by ETFs - which swung from very large inflows in Q3 2020 tomodest outflows this year - overshadowing strength in other sectors of demandduring the quarter. Jewellery, technology and bar and coin were significantlyhigher than in 2020," the analysts said in the report.
The lackluster investment demandled to gold prices average the summer $1,789.50 an ounce, down about 1% fromthe second quarter and 6% down compared to the third quarter of 2020.
"Gold's performance isconsistent with its demand and supply dynamics and a macro environment of higherinterest rates and risk-on investor appetite," the analysts said. "A brightstart, flat middle, and weak ending sums up a lacklustre quarter for the gold price in Q3."
While investment demand has beenmeager at best through 2021, the WGC said that the overall market remainsresilient. The WGC noted that physical demand continued to recover from theimpacts of the COVID-19 pandemic.
Looking at the jewelry sector,lower prices have helped increase consumer demand even as it remains belowpre-pandemic levels.
The WGC said that jewelry demandin the third quarter totaled 442.6 tonnes, up 33% from 2020. However, theanalysts noted that demand is 12% below the five-year average.
"In Q3, gold jewellery demandwas driven by economic recovery and improving consumer sentiment, continuingthe trend from the first half of the year. [Year-to-date], global jewellerydemand is almost 50% higher than the same period in 2020," the analysts said.
Looking at the investmentsector, the WGC said that total demand dropped to 235 tonnes, down more than50% from the third quarter of 2020. The decline was driven by 27 tonnes of gold fleeing the ETF market. However, looking beyond the headline numbers, the WGCsaid that the demand for physical bullion increased between July and September.
The report said that demand forgold bars and coins totaled 261.70 tonnes, an increase of 18% from last year.
"Strong Q3 growth wasunderpinned by a range of factors, including ongoing emergence from COVIDrestrictions in many countries, continued fears over rising inflation, and theprice dip in August, which encouraged many investors to buy," the analystssaid.
The WGC also noted that centralbank gold demand remains a pillar of strength. The report said that centralbank gold purchases totaled 69 tonnes in the third quarter.
"[Year-to-date] net buying of393t has comfortably surpassed the 2020 annual total (255t) and is poised toreach a significant total in 2021," the analysts said.
The WGC also reported solidgrowth in the tech sector as industrial demand for gold increased 9% in thethird quarter to 83.3 tonnes.
"As large parts of the world emerged from theCOVID-19 pandemic, improving consumer confidence created strong demand forbig-ticket items such as vehicles and high-end consumer electronic devices,"the analysts said.
Despite the growth in industrialdemand, the WGC notes some headwinds for this sector as workers head back tothe office and demand for personal computers and equipment drops. The analystspointed out that the growing chip shortage could also weigh on the techsector's demand for gold.
On the supply side of the goldmarket, the WGC said that total supply in the third quarter dropped to 1,238.9tonnes, down 3% from last year as recycling in the gold market declined.
"Recycled gold supply fell 22%y-o-y and was 16% lower than in Q3 2019, owing to a lower gold price anddepleted near-market supplies," the analysts said.
The WGC said that mine supplyincreased 4% to nearly 960 tonnes in the third quarter.
By Neils ChristensenFor Kitco News
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