Gold prices to get support as central banks maintain historic buying in Q3: World Gold Council

Gold buying by central banks around the world has been at a historic pace lifting the gold demand (excluding OTC) in the July-September quarter at 1,147 tonnes, 8% higher than its five-year average, a latest report said.

According to the World Gold Council’s Q3 Gold Demand Trends report, net central bank buying reached 337 tonnes, which was the third strongest quarter in its data series. However, it failed to break the record 459 tonnes in Q3 2022. 

Central banks have bought a net 800 tonnes of gold year-to-date (YTD), the highest on record for that nine-month period.

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Q3 investment demand of 157 tonnes, although 56% higher YoY, was weak relative to its five-year average of 315 tonnes. Bar and coin investment declined 14% YoY to 296 tonnes, largely due to sharp falls in Europe, the report showed.

Jewellery consumption softened slightly, down 2% YoY at 516 tonnes amid continued gold price strength. 

“Central bank net buying was back with force this quarter alongside solid bar and coin demand, helping gold prices defy surging bond yields and a strong US dollar. The reluctance of ETF investors and speculative buyers to actively join the fray so far this year represents an increasing opportunity for price strength in Q4, given the solid underlying case and troughing sentiment,” World Gold Council said.

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Meanwhile, Gold Exchange-Traded Funds (ETF) and futures investors have shown little appetite for gold while bar and coin demand has remained unexpectedly healthy. 

Although rising bond yields now offer an alternative source of real income for many investors, particularly in Europe, WGC attributes most of this year’s ETF outflows to ‘weak hands’.

“Underlying support for gold remains, in our view, and is bolstered by escalating geopolitical tension and troughing sentiment as reflected in COMEX futures. This presents an opportunity for these segments to return to net inflows in Q4,” the report said.

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It noted that the strength in bar and coin demand in China and India is likely to continue, but with different drivers. 

Economic and geopolitical uncertainty appears to be spurring safe-haven demand in China, while economic strength in India is yielding wealth-driven buying. These two factors are not at odds as they help form the basis of gold’s long-term performance, it added.

European demand has yet to be revived, although in the US price strength appears to have garnered interest early in Q4. There may be a chance that this will translate to better demand in Europe too. It remains cautious on the outlook but retains some upside.

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