Investors are buying less gold, central banks are buying more

The demand for Physical Gold was relatively weak in the third quarter of this year due to disappointing sales of jewellery and investment gold, according to Thomson Reuters GFMS in its latest Quarterly report about the gold market. Due to rising tensions over North Korea, the gold price reached a level of $1,350 per troy ounce in the third quarter, which caused a stagnation of gold sales in Asia, according to the research firm.

The relatively weak sales figures are not limited to Asia, as interest in the precious metal is also declining in the Western world. Especially in the United States, sales of Gold Coins and have fallen quite sharply this year, as investors are currently more interested in stocks and in alternative investments such as virtual currencies. This is also evident from the stock development of gold ETFs, which have stagnated this year. This is despite the fact that interest in ETFs was overwhelming last year.

'Surplus' in the gold market increased further this year (Source: Thomson Reuters GFMS)

Central banks

While many investors seem to be losing interest in the precious metal and consumers in Asia are waiting for a lower Gold price central banks continue to add net precious metal to their reserves. In the first three quarters of this year, they bought 27% more gold than in the same period last year, which can largely be attributed to gold purchases by the Turkish central bank. They bought 6.8 tonnes of gold in May and another 13.5 tonnes in June. In July and August, another 8 and 8.9 tonnes of gold were added respectively.

The central banks of Russia and Kazakhstan also added a lot of precious metal to their reserves this year. In the first half of this year, Russia withdrew about 100 tonnes of gold from the market, while Kazakhstan added 21 tonnes to its stockpile. The absence of the Chinese central bank was striking, as it has not bought any precious metal since October last year.

In Turkey, the demand for gold is in an uptrend (Source: Thomson Reuters GFMS)

In Germany, the demand for gold is not declining (Source: Thomson Reuters GFMS)

Gold mining sector

In the first half of this year, global gold mining production increased by only 0.1% compared to the same period last year. More gold came out of mines in North America and Africa this year, while mine production in Asia and South America declined. The increase in average production costs is striking, as in the third quarter it cost the gold mining sector an average of $874 to produce a Troy Ounce Gold out of the ground.

According to figures from Thomson Reuters GFMS, the so-called All-in Sustaining Costs (AISC) have risen by 6% in a year. The rising cost of production indicates that it is becoming increasingly difficult to mine gold. In the first half of this year, gold miners worldwide extracted an average of only 1.78 grams of gold from every ton of gold ore. That also explains why it is so precious to extract gold.

Gold mine production costs have risen further (Source: Thomson Reuters GFMS)

Global production of gold mines remained stable (Source: Thomson Reuters GFMS)