Despite big jumps seen in physical gold bullion and ETF inflow, the world’s total demand for gold fell during the third quarter to its lowest level since 2009 according to a new report by the World Gold Council.
The WGC reports the demand for physical gold bars and coins increased in the third quarter by 49% compared to the same quarter in 2019, with Western investors being particularly strong buyers.
The demand for gold bars and coins more than quadrupled here in the U.S. during 3Q to 19.2 tonnes year-on-year. It was the strongest quarter for physical gold bullion in America since 2016. The World Gold Council notes:
The strong rise in the gold price to record highs in early August attracted a certain degree of momentum investing, while the continued global economic stress due to the global pandemic underpinned gold’s role as a risk hedge and protector of wealth.
The third quarter also saw continued interest in gold ETFs, with quarterly inflow increasing to 3,880 tonnes, a fresh record high. The World Gold Council said, “While the pace slowed a little from H1, sustained inflows throughout Q3 demonstrate the continued motivation of ETF investors to add to their holdings.”
Meanwhile, central banks generated net sales in 3Q for the first time in more than a decade. Sales mostly came from the central banks of Uzbekistan and Turkey while a handful of other banks made small purchases. The WGC says, “[Central Bank] buying continues at a moderate pace, driven by the need for diversification and protection amid the negative rate environment.”
Demand for gold jewelry improved from second-quarter record lows, but sales continue to lag. Global third-quarter gold jewelry demand fell by 29% year-on-year, with China and India accounting for the biggest declines. Likewise, the demand for gold used in technology also remained weak during 3Q, down 6% year-on-year.
The world’s total supply of gold also fell in the third quarter by 3% year-on-year to 1,224 tonnes. Despite a 6% increase seen in gold recycling, mine production was still experiencing the effects of coronavirus restrictions. The World Gold Council said, “While many economies have gradually emerged from their full lockdowns, COVID-19 restrictions continued to exert some influence on mining activity during the quarter.”
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Nevertheless, some of the mining regions that were most affected by covid shutdowns are those most quickly recovering. In the U.S. gold mine production increased 12% year-on-year in 3Q.
Output increases can be credited to expansion projects like Nevada Gold Mines, a joint venture between Barrick (NYSE: GOLD) and Newmont (NYSE: NEM) aiming to create the single largest gold-producing complex in the world.
Moreover, many of the declines in gold output during the third quarter were unrelated to COVID.
Gold production in Papua New Guinea, for example, saw a 40% year-on-year drop in production during 3Q. That’s because the country’s second-largest gold mine — Porgera, which produces about 600,000 ounces annually — has been shut down since April. The government of Papua New Guinea refused to extend Barrick’s lease on the property and (ostensibly) plans to nationalize the project on environmental and social grounds.
Meanwhile, declines in gold production from China and Russia were due to the continued implementation of stricter environmental policies and declining ore grades. The World Gold Council writes:
As we noted in Gold Demand Trends Q2 2020, the disruption caused by COVID will likely lead to a fall in annual gold production in 2020. But with most of the affected operations now having returned to normal production levels, the pandemic is not expected to have a significant impact going forward.
Until next time,
Luke Burgess
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
