The third quarter of 2019 set a record as ETFs pushed gold’s investment demand to record levels. This is despite the weak demand on retail bar and coin. September 2 ETF holdings pushed past the previous 2012 record of 2,841 tons, netting at 2,855 tons or a total worth of US$136 billion. Such strong showing blunted the edge off some decreasing trends in the same time period.
This quarter’s growth was also the highest on record, surpassing Q1 2016 with 258 tons in inflows. This demand was driven mostly by momentum-buying. Compared to the previous Q3 alone, this year saw a decrease of 38% in terms of quarterly net purchases. This shouldn’t be treated as a red flag yet, as last year saw record numbers as well — a decline would just be the normal course. On a year-to-date basis, however, central banks have driven purchases up by 12%, thanks to 547 tons’ worth of net purchases.
All isn’t shining for Q3, however, as the continued geopolitical turmoil in many places have placed a dent on jewelry demand, which went down to just 460.9 tons (a decrease of 16%). This is in addition to a 50% decline in bar and coin investment, which flopped to 150.3 tons. These numbers represent a multi-year low, thanks to higher prices that deterred retail investors from purchasing. The “hold” mentality is currently dominant in the quarter’s gold market.
Asia proved to be the most troubling spot when it comes to bar and coin gold investments for the quarter. China’s bar and coin demand decreased by more than half, while Southeast Asia also showed disinvestment. Thailand, the largest market in the region, experienced its first disinvestment in ten years due to a slowing economy. The Middle East also showed a significant drop in the gold market, while the Indian subcontinent is weakening in the face of competition.
Turkey was a different story, being just about the only Asian country that grew year on year. The story is different for Europe and the US, as the bulk of growth in other aspects of the gold trade originated from these countries. These were also major players in the ETF surge we described earlier, with Europe showing the most diversity in inflows.
Despite these drawbacks in some areas of the global market, gold supply rose overall to 1,222.3 tons. This is a 4% increase, driven by an increase in recycling. This is also the highest level since 2016. The increase in prices encouraged consumers to sell back their gold, contributing to the supply. Production from the mines, however, continued at level year-on-year.
Most significantly for the market, the price of gold continued to increase, reaching one of the highest rates of recent years. Q3 2019 showed a 5% rise, pegged at US$1,500 per ounce. Global political tensions contribute to this increase in price, while fears of economic slowdown work to lower interest rates.
Finally, technology is also making its mark as an important factor. The budding infrastructure of 5G equipment helped slowdown what could have been a significant drop in the electronics sector.