Did you know that gold is extremely ductile? A single ounce of gold (31.10 grams) can be stretched into a gold thread 8 kilometers long? Welcome to our Quarterly Report on Gold. The report provides a deep insight into the performance of gold over the 3rd quarter of 2022.
China experienced massive disruptions in Q2 due to the implementation of the "Zero-Covid" policy. The policy prevented investors and retailers alike from conducting business. However, in Q3, gold jewellery demand experienced a 58% (quarter-on-quarter) growth due to changes in investor sentiment and a decrease in local gold prices.
Persistent lockdowns, sluggish economic growth and a weak local currency, have encouraged jewellery consumption. 24Karat (99.9% pure gold) products are highly demanded compared to their lower purity counterpart (18K, 75% pure gold). Higher-purity gold products promote value preservation through lower yields and transparent labour charges.
Retailers actively promote heavier gold products to boost profits and recover from a weak Q2. Chinese investors hunted for heritage gold products such as antique gold bangles with higher gold purity. Evidently, the heritage product market has surpassed 18K jewellery in China.
(WGC) World Gold Council analysts believe that Q4 performance for gold jewellery in China has more upside than downside potential. Seasonality and the government's efforts to boost jewellery consumption will aid economic activity in the sector. However, China's Covid policies may remain a barrier to generating growth.
India's performance in Q3 was impressive as it overturned the negative global expectations for jewellery demand. Urban investors drove jewellery demand as India's economic activity began normalising. Credit expansion has also added a positive outlook to jewellery demand. In several recently published articles, India's bank credit growth grew by 17%, touching a 9-year high by the end of Q3.
WGC analysts have projected that India's outlook for the year is positive due to upcoming festivals and marriages. Despite its respectable performance, demand figures are not to be on a record-breaking path compared to Q4 2021 as higher inflation cripples rural areas.
In Q3, drivers for gold investment are high inflation and the resultant impact on interest rates. Bar and coin investors focused on hedging against inflation. In contrast, ETF investors reduced their holdings as opportunity costs rose from interest rate hikes and the surging US dollar.
Global ETFs positions experienced negative outflows of 227 tonnes (US $12 billion) for Q3 reducing the total holdings to 3,548 tonnes. Five straight months in Q3 have almost successfully reversed inflows of 316 tonnes generated between January - April 2022.
Europe ETFs saw inflows of 41 tonnes earlier in the year due to uncertainty surrounding the Russia-Ukraine war. However, Q3 performance saw a net outflow of 78 tonnes because of interest rate hikes imposed by central banks such as the ECB, SNB and BOE.
In North America, ETFs generated the most substantial outflow of 149 tonnes to global gold ETFs. The Federal Reserve's hawkish approach to monetary policy altered investor sentiment. Investors sought to adjust their investment portfolios for higher interest rates.
ETF performance in Asia saw a marginal inflow of 1 tonne during Q3. China influenced ETF performance in Asia as Chinese investors increased their gold holdings due to lower local prices. In India, ETFs were a net outflow of less than 1 tonne as higher returns on local equities and bonds attracted investors.
In Q3, the performance of gold bars and coins grew by 8% year-on-year to 70 tonnes as a result of the following:
WGC analysts suggest that gold as a "safe haven" and Chinese commercial banks' promotion of physical gold products should support overall demand.
India's performance saw an improvement of 6% year-on-year as retail investors reacted to the lower local gold prices and weaker equity markets. Q3 demand was 14% higher than the five-year quarterly average, the highest since Q1 to Q3 2015. However, a recent increase in customs duty on gold saw imports interrupted. The result saw increased smuggling activities on upwards of 29 - 30 tonnes of gold. Traders were exploiting a loophole that allowed them to import gold as a platinum alloy, paying a lower customs duty.
The festive period of Navratri, Diwali and wedding seasons saw improvements in coin demand. Discussions with Indian traders indicate that the remaining months of 2022 should match the performance of 2021 Q4, the highest quarterly investment for nine years.
Gold bars and coins' performance in the Middle East grew by 64% year-on-year (26 tonnes), the highest quarterly retail investment for four years. Influencers such as rising inflation and opportunities to purchase gold price dips drove investors. Retail investment in Turkey is also substantial, with recorded increases of fivefold. The 47-tonne record is the second-highest quarterly report seen from Turkey. Exceptional inflation levels and stable prices of the Lira saw a surge in demand.
In the West, inflation, weakened economic growth and persistent geopolitical tensions continue to fuel demand for gold bars and coins. US demand remains positive at 3% year-on-year as consumers express pessimism towards the US economy and rising inflation.
A recent study conducted by the WGC indicates that 82% of consumers believe that gold offers protection against inflation and currency fluctuations. 85% of respondents agree that gold is a safe haven against political and economic uncertainty. The remainder of prospects suggests that demand will remain healthy as more than 50% are "very likely" to buy gold coins or bars within the next 12 months.
Europe has also experienced a surge in gold investment by 28% year-on-year. Weak growth across the region, war, and central banks struggling to balance inflation continues to fuel gold investment.
Investment demand remains robust across South East Asian (SEA) markets. The concern about inflation, currency depreciation and sustainability of medium-term economic growth remains troubling to investors.
Global central banks accumulated 400 tonnes of gold in Q3 (115% quarter-on-quarter) increase. Generally, official institutions refrain from publicly reporting their gold holdings or may do so with some time lag. Metal Focus analysts suggest that purchases in Q3 may have started well earlier in the year.
The demand trend for gold corroborates the WGC's findings from its 2022 Annual Central Bank Survey. A quarter of respondents in the survey indicated their intention to increase their gold reserves over the next 12 months.
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