Via World Gold Council (WGC) Q3 report
Global gold demand amounted to 993t in Q3 2016 (-10%), as high gold prices discouraged consumers. ETPs were the only bright spot during the quarter, with 146t of inflows helping to counterbalance weak demand elsewhere, notably in jewellery (-21%), bars and coins (-36%) and purchases by central banks (-51%).
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A third successive quarter of growth in ETPs brought cumulative inflows to 725t in 2016 so far. Negative interest rate policies and political uncertainty – linked to the looming Presidential vote in the US and the prospect of European elections next year – were the key factors driving these inflows. In contrast, year-to-date bar and coin demand of 664t was 13% weaker year-on-year.
Total Q3 supply was up 4% to 1,173t (from 1,127t in Q3 2015).
Recycling was the primary driver of this growth, up 30% year-on-year as the higher price encouraged consumers to sell some of their existing gold holdings. Mine production – virtually unchanged year-on-year (-0.5%) – continued to plateau, while Q3 saw net de-hedging (of 15t) for the first time in four quarters.
ETPs were the only bright spot for gold demand in Q3. The focus shifted from the US as European ETPs drove the inflows.
Investors continued to build up their strategic allocations to gold via ETPs: Q3 was the third successive quarter of hefty growth, albeit that the pace of inflows slowed slightly from the stellar first-half. The net addition of 145.6t took total AUM in these products to 2,335.6t, the highest since April 2013. Year-to-date1 inflows sum to 725t – far exceeding the cumulative 616t of outflows from the preceding 10 quarters and worth a value of US$64.5bn.
As discussed in Gold Demand Trends, Second quarter 2016, this is a somewhat predictable pattern. Empirical evidence – gleaned through both regression analysis and direct consumer research – shows that price is a primary driver of recycling amongst consumers 4. With the local gold price hitting new highs in some currencies, it would be unusual not to see this type of response from consumers, who – in markets where recycling is most prevalent – are often keenly aware of the gold price.
India is a very good example of the increase in recycling. With local gold prices in the vicinity of Rs31,000/10g during the first half of the quarter, Indian consumers – particularly in rural areas – opted to cash in, swelling the supply of recycled gold to 39t, its highest level since Q4 2012. This boost to local supply enabled some jewellers to reduce their reliance on fresh imports to satisfy demand. One such example of this is Muthoot Pappachan Group’s Swarnavarsham Scheme 5. Over the past 18 months, Muthoot has reportedly collected about 200kg of gold through its nine recycling centres, which has been used to meet gold demand from consumers with lower incomes.
See infographic below and full report here