Global demand for gold drops 19% in third quarter

Demand for the nine-month period hits record low on the back of weak demand and high prices

Gold bars and coins are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich, Germany. Gold closed at $1,951.35 an ounce on Friday, up 3.6 per cent over the course of last week - it's highest weekly gain since July. ReutersShow less

Global demand for gold dropped by 19 per cent year-on-year in the third quarter to 892 tonnes as demand slowed amid the Covid-19 pandemic.

Demand fell to the lowest quarterly total since the third quarter of 2009, the World Gold Council said in its Gold Demand Trends report on Thursday. At 2,972.1 tonnes, the year-to-date demand for gold was 10 per cent lower than the same period last year.

“The impact of Covid-19 is still being felt in the gold market across the world,” Louise Street, who leads the World Gold Council’s market intelligence team, said.

“The combination of continued social restrictions in many markets, the economic impact of lockdowns and all-time high gold prices in many currencies proved too much for many jewellery buyers. We believe that this trend will likely continue for the foreseeable future,” she added.

Despite declining demand, the third quarter saw a significant growth in demand from gold investors, up 21 per cent on the prior year. Investors also bought 222.1 tonnes of gold bars and coins, a 49 per cent annual increase.

“Much of the growth was in official coins … due to continued strong safe-haven demand in Western markets and Turkey, where coins are the more prevalent form of gold investment,” the report said.

Inflows into gold-backed exchange traded funds also continued, but at a slower pace than in the first half of the year. Investors added 272.5 tonnes to their holdings of these products, taking flows for the first nine months of the year to a record 3,880 tonnes.

“Looking at the investor landscape we saw further record inflows into gold-backed ETFs in Q3, taking the global total to a record high,” Ms Street said. “It was equally encouraging to see gold’s role as a safe-haven for retail investors shine through this quarter, as people continue to seek stability in volatile markets.”

Demand for gold jewellery picked up from a record low during the second quarter when lockdowns were at their peak, but the weaker economic environment and the high price of gold, which hit a record in August, continues to be a deterrent in many markets.

Jewellery demand dropped 29 per cent annually to 333 tonnes in the third quarter. For the nine-month period, it stood at its lowest ever level at 904 tonnes, which was 30 per cent lower than the previous low of 1,291.7 tonnes in the corresponding period in 2009 following the global financial crisis.

Central banks switched from net buyers in the first half of the year to net sellers in the third quarter, generating modest net sales of 12 tonnes of gold in the three-month period. This was the first quarter of net sales since the last quarter of 2010, primarily due to concentrated sales by two banks (Turkey and Uzbekistan). Buying continues at a moderate pace, driven by the need for diversification and protection amid the negative rate environment, the report added.

In the Middle East, a combination of weak energy prices, an outflow of Indian expats and lower tourism numbers all contributed to a demand decline, the report said.

Regional demand was down 27 per cent to 26.6 tonnes. Iran and the UAE led the downturn, with declines of 34 per cent and 30 per cent, respectively.

In Saudi Arabia, an increase in value added tax on jewellery from 5 per cent to 15 per cent as of July 1 was an additional obstacle to demand. It fell 24 per cent to 7.2 tonnes in the kingdom.