Gold investment has shown resilience, according to the World Gold Council’s (WGC) ‘Gold Demand Trends’ report for the second quarter, released on August 1, 2023.
Despite some softness in certain areas of the market, the report indicates that investment demand remains robust while fabrication demand faces challenges due to high prices and affordability concerns among consumers.
The WGC’s projections for investment in the current financial year remain unchanged, thanks to strong over-the-counter (OTC) demand compensating for sluggish performances in exchange-traded funds (ETFs) and bar and coin investments.
Factors contributing to this trend include expected interest rates that won’t pose restrictions for gold investors, making the precious metal an attractive option. Additionally, slower economic growth is anticipated to lead investors to seek safer havens like gold, and negative sentiment and under-allocation in certain portfolios are driving higher institutional involvement in the precious metal. Lower inflation has somewhat diminished retail investors’ interest in gold compared to other periods, as outlined in the WGC report.
On the other hand, fabrication demand has faced a minor downward revision due to high gold prices, leading some consumers to reconsider their purchases.
Central banks continue to add to their gold reserves, bolstering demand for the precious metal. However, the WGC has made a slight downward adjustment to its central bank estimate for the current financial year, considering a weak second-quarter performance.
Regarding supply, the WGC report indicates that mine production is gearing up for a record high, contributing to an overall increase in supply. Recycling is also projected to rise as households, facing financial constraints, are expected to turn to gold recycling to access additional income.
Despite a slight dip in gold demand, excluding OTC, by 2% year-on-year to 921 t, the total demand, inclusive of OTC and stock flows, showed strength with a 7% year-on-year increase, reaching 1 255 t.
Jewellery consumption managed a modest 3% year-on-year improvement, with 476 t of gold being used. Bar and coin investment increased by 6% year-on-year, reaching 277 t in the second quarter, with Turkey being a major driver of this growth. On the other hand, ETFs witnessed net outflows of 21 t, primarily concentrated in June, but these outflows were significantly smaller than the previous year.
OTC investment emerged as a notable bright spot in the second quarter, with demand reaching 335 t.
Demand for gold used in technology remained soft, with just 70 t used for a second consecutive quarter. Continued weakness in consumer electronics contributed to the lackluster performance in this segment.
Total gold supply experienced a 7% year-on-year increase, reaching 1 255 t, with growth observed across all segments, particularly in mine production, which surged to an estimated record of 1 781 t for the first half of 2023.
The record-high LBMA gold price averaged an unprecedented $1 976/oz during the second quarter, surging 6% year-on-year and surpassing the previous record high set in the third quarter of 2020 by 4%.
The first half gold demand, excluding OTC, experienced a 6% decline, totalling 2 062 t. However, when inclusive of OTC and stock flows, total demand in the first half rose by 5% to 2 460 t, reflecting the dynamic nature of the global gold market.
Central bank gold buying reached a new first-half record of 387 t. Although there was a slowdown in the second quarter, the strong start in the first quarter established a record-breaking first half for central bank purchases.
Local market conditions played a pivotal role in driving exceptional gold demand in Turkey during recent quarters, with a total demand for jewellery, bars, and coins reaching an impressive 118 t for the first half, marking the highest first-half year since 2007.
Gold recycling in the first half demonstrated a notable 9% year-on-year increase, with China and India leading the way. However, recycling has yet to see significant upticks in Western markets, despite high gold prices and mounting cost-of-living pressures.
