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Central banks bought a record amount of nearly 400 tonnes of gold in the third quarter, while sales of coins and bars were 41% higher than the previous quarter. This is what the World Gold Council writes in its latest quarterly report on the gold market. The huge gold purchases by central banks are particularly striking, as they have not been as high as they are now since 1967. A period in which the London Gold Pool was slowly in danger of falling apart. What does the latest quarterly report say about the state of the gold market?
Shortly after the corona crisis, central banks bought much less gold, mainly because emerging markets needed money and sometimes had to draw on their gold reserves to do so. But now that the economic and geopolitical situation has become so uncertain, gold purchases are on the rise again. After three quarters, the counter already stands at 673 tonnes, more than what central banks normally buy in a whole year.
Unfortunately, the World Gold Council has not been able to find out where the outlier in the third quarter comes from. It may be a country like Russia or China, which can make gold purchases without passing it on to the IMF. Central banks also sometimes make gold purchases through the Bank for International Settlements (BIS), where the buyer is not publicly disclosed.
The central banks that bought gold last quarter and did announce it were Turkey (+31 tonnes), Uzbekistan (+26 tonnes), India (+17 tonnes) and Qatar (+15 tonnes). There were also some smaller purchases of a few hundred thousand euros by the central banks of Mozambique, the Philippines and Mongolia. There were no significant sales in the third quarter.
Central banks bought record amounts of gold in third quarter (Source: World Gold Council)
It won't surprise you that with all the geopolitical turmoil in the world, gold is still in high demand. And even though interest rates are rising again, adjusted for high inflation, the return on savings is still negative. This is also reflected in the figures of the World Gold Council, because private individuals in particular buy a lot of gold to protect their purchasing power against the depreciation of currencies. With 351 tonnes of investment gold sold worldwide, this was the best third quarter since 2011.
As the graph below shows, the demand for Gold Coins and Gold bars in the third quarter. Not only in Western markets such as Europe and the United States, but also in countries such as India and China. The fact that price-conscious consumers in these countries also bought more gold is largely due to price developments, because the strong dollar prevented the gold price from rising.
According to the World Gold Council, the U.S. Mint sold the most gold coins since 1999 this year, as many Americans are concerned about the economy and high inflation. It is not much different in Europe, where the demand for investment gold rose to 72 tonnes. An increase of 28% compared to the same quarter of last year. In Germany, a total of 131 tonnes of coins and bars were sold over the first three quarters, the highest level ever recorded over this period. In China, demand doubled to 70 tonnes in the third quarter.
We are also seeing a strong increase in the demand for precious metals in the Netherlands. In October, for example, we achieved a record turnover, which even exceeded the months immediately after the corona crisis. Not only do we see a lot of new customers, but also existing customers who have more Buy gold to protect their assets from inflation.
Worldwide more demand for gold coins and bars (Source: World Gold Council)
A side note to these figures is that the demand for gold in the form of ETFs decreased again in the third quarter. In the third quarter, ETF inventories fell by 227 tonnes, the biggest drop since the second quarter of 2013. This is mainly due to the strong dollar, which means that large investment funds are reducing positions in gold in favour of other investments. The rising dollar and higher interest rates made U.S. government bonds more attractive to mutual funds.
Furthermore, we see a recovery in the jewellery market in the quarterly figures. This was hit hard by the corona pandemic, as many jewellers had to close their shops during lockdowns. In important markets such as India and China, demand also fell due to the great economic uncertainty caused by the corona crisis. In these countries, people also buy gold jewellery as a form of savings. In the meantime, this market has recovered to normal levels, as the chart below shows the demand for jewellery in India.
Indian gold jewellery market recovers from corona crisis (Source: World Gold Council)
Despite the higher Gold price And the attractive profit margins are proving difficult for gold mines to further increase production. The most easily extractable reserves have already been extracted, while investing in new mines takes time and money. During the corona pandemic, the profit margins of the mines rose to record highs, as the gold price then rose towards $2,000. Now that the gold price in dollars is a lot lower and the fuel costs have increased, that margin has decreased again. As a result, the mine supply will not increase rapidly in the coming years.
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