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Consumer and Central Bank Buying Push Gold Demand Up in Q3

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Increased gold buying by consumers and central banks pushed overall demand for the yellow metal up slightly in the third quarter, according to the World Gold Council’s Gold Demand Trends 2018 Report.

Overall gold demand came in at 964.3 tons in Q3. That was 6.2 tons higher year-on-year. Strong central bank and consumer demand offset significant outflows from ETFs.

We’ve talked about “gold on sale.” Well, investors took advantage of the lower prices and bought plenty of the yellow metal in the third quarter. Sales of gold bars and coins rose 28% to 298.1 tons.

Chinese investors led the way.

The world’s largest bar and coin market saw significant growth. Demand in China shot up 25% y-o-y and q-o-q to reach 86.5t in Q3, comfortably above its three- and five-year quarterly average of 71.4t and 65t respectively.”

Bar and coin demand in India also picked up, reaching 34.4 tons.

Meanwhile, Middle Eastern bar and coin market continued its recent uptrend, rising 144% year-on-year and 28% quarter-on-quarter. Demand reached 27.8 tons, its highest level since Q2 2013. Economic sanctions pushed gold demand in Iran to a five-and-a-half year high.

Consumers also drove jewelry demand up 6% to 535.7 tons.  India, China and several South-East Asian markets saw respectable y-o-y increases, according to the WGC.

Central banks were big buyers of gold in the third quarter as well. On net, central banks purchased 148.4 tons of the yellow metal in Q3. That was 22% higher y-o-y and the highest level of quarterly demand since Q4 2014. Russia, Turkey and Kazakhstan accounted for the lion’s share of purchase, but we even saw increases in gold reserves from two EU banks – Hungary and Poland.

We’ve been reporting on efforts by countries like Russia and China to limit their dependence on the US dollar and set up alternative systems outside of the global dollar system, along with the growing number of central banks buying gold as a way to diversify their holdings away from the greenback.  In September, the EU announced it will create a special payment channel to circumvent US economic sanctions and facilitate trade with Iran.

Consumer and central bank purchases offset significant outflows of gold from ETFs. Funds saw a 116-ton decline in Q3. This compares with inflows of 13.2 tons in the third quarter last year. It was the first quarter of net gold outflows from ETFs since Q4 2016. North America accounted for 73% of outflows, fueled by risk-on sentiment, the strong dollar and price-driven momentum.

Gold demand in the technology sector enjoyed its eighth consecutive quarter of growth, rising by 1% to 85.3 tons.

On the supply side, mine production in Q3 was up about 2% year-on-year, but total supply fell 2%. The supply of recycled gold fell off by 4%.

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