Gold market: Review third quarter 2013

Summary

Compared to the third quarter of 2012, the demand for gold in the third quarter of 2013 fell by 21% to 868.5 tonnes. This is mainly due to the outflows of ETFs. Consumers behaved in the opposite way. In particular, the demand for gold jewellery, gold bars and gold coins increased on the Asian market. Central banks maintained a stable purchasing policy. Production by gold mines increased slightly, but the supply of gold decreased by 3% to 1,145.5 tonnes, due to less gold being recycled.

Jewellery industry

In the third quarter of 2013, the jewellery industry bought a total of 486.7 tonnes of gold. This is the largest amount purchased in a third quarter since 2010. Together with the record quantities in the previous quarters, this represents an increase of 20% year-on-year compared to 2012.

In monetary terms, the jewellery sector bought less: 15% on an annual basis. This is due to the low price of gold (which also explains the increased demand). A lot of gold jewelry was sold in Asian countries. Demand was particularly high in Hong Kong, partly due to the increased number of tourists.

Investors

In the third quarter of 2013, investors exhibited contradictory behavior. On the one hand, the demand for gold bars and gold coins increased by 6%, on the other hand, this was the third quarter in a row in which ETFs were divested en masse. All forms of investment in gold combined showed a decrease of only 1% compared to a year ago.

Asian investors, especially in China and Thailand, dominated the market. Price fluctuations on the local market led to a gold rush in India, but this was tempered by the intervention of the authorities and the central banks, so that on balance this country played a less important role.

Central banks

In the third quarter of 2013, central banks replenished their reserves with 93.4 tonnes of gold. In total, they bought about 300 tons of gold last year. The Commonwealth of Independent States in particular made large purchases, with Russia as the frontrunner. (Russia bought 18 tons.) Russia's gold reserve now stands at about 1,000 tonnes. Kazakhstan (6 tonnes), Azerbaijan (6 tonnes) and Ukraine (3 tonnes) were also prominent buyers on the gold market this quarter.

In September, the final year of the third Central Bank Gold Agreement (CBGA) ended. Spokespersons for several banks, including the Banca d'Italia, the Banque de France and the Bundesbank, as well as the European Central Bank, stressed the importance of gold for the banking world as a reserve.

Technology

Mainly due to the popularity of smartphones and tablets, there was 1% more demand for gold from the technology sector in the third quarter of 2013 than a year ago. Also, the low price was an incentive to increase production and replenish stocks.

The automotive industry was particularly in need of gold for the production of semiconductors, due to the increasing amount of electronics in cars. On the other hand, copper and especially silver are increasingly used for the connecting wires in the same electronics instead of gold.

For other industrial applications, not significantly more or less gold was used than a year ago.

Supply and demand

The supply of gold has fallen 3% in weight from a year ago. This is mainly due to the fact that less gold was recycled. Industrial gold has become scarce due to recycling in the past, and the low gold price is not an incentive to offer the remaining supply. Production by gold miners actually increased, but not enough to compensate for the decline in the supply of recycled gold.

Demand for gold has also fallen by 3%. Central banks bought as much as 17% less gold. On the other hand, the demand from private individuals for gold bars and gold coins increased, by 6%.

Source: World Gold Council