World Gold Council: Gold demand rises 8 percent in Q3, hits two-year high
The World Gold Council has released its Q3 Gold Demand Trends report, which examines global gold demand with regards to investment, jewelry and central bank buying.
In Q3 2015, gold demand climbed as consumers across the global capitalized on buying opportunities. Total gold demand in Q3 2015 stood at 1,121 tons (t), an increase of eight percent compared to the same period last year, according to the World Gold Council’s Gold Demand Trends report, with Q3 2015 consisted of two distinct halves. In the first part, a number of factors, including ETF outflows, contributed to a price dip which buoyed consumer demand around the world. A shift in tactical investor positions in the latter part of the quarter led to modest ETF inflows in August and September, which helped to push prices back up.
Global investment demand saw a significant increase this quarter, up 27 percent to 230t. Bar and coin purchases were up by a third on Q3 2014 with Western markets in particular showing a surge. In the US, bar and coin demand reached its highest total in five years, up 207 percent to 33t.
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Europe also saw strong levels of demand in the investment sector as ongoing concerns surrounding the Greek debt crisis and uncertainty in Eastern Europe, the result of a number of factors including continuing tensions between Russia and Ukraine and saw demand climb by 35 percent to 61t. In China, investment demand grew by 70 percent to 52t, as demand was initially stimulated by the gold price weakness in July, which was further fuelled by the mid-August foreign exchange reform. In India, the investment sector saw its first increase since Q3 2014, up six percent year-on-year to 57t.
Overall jewelery demand for Q3 2015 was 632t compared to 594t in Q3 2014, up six percent year-on-year. Consumers in India, China, the US and the Middle East took advantage of lower prices in July and August. This was particularly evident in India, partly as festival purchases were brought forward, resulting in a 15 percent increase in jewelery demand to 211t over the period.
Central banks remained a significant source of demand, and were net buyers for the 19th consecutive quarter. Purchases by official sector institutions reached 175t, a level almost matching the record highs in Q3 2014, as the net widened to include new reports from countries such as China and the UAE.
Total supply was marginally higher year-on-year up one percent at 1,100t. Mine production contracted slightly and recycling declined further in Q3, but this was more than offset by fresh producer hedging. The long term indication is that supply will remain constrained as the mining industry continues to proactively manage costs and optimise its operational performance.
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Alistair Hewitt, Head of Market Intelligence at the World Gold Council, said: “China and India remain the dominant figures in the global gold market, accounting for close to 45 percent of total demand. But what was particularly noticeable this quarter is that the consumer response to the price dip was a truly global occurrence. There were significant gains in bar and coin demand in China and across Europe, but it was in the US where we saw the most dramatic growth, with US Mint Eagle sales reaching their highest level since Q2 2010. Global jewelery demand also picked up, in what is traditionally a quiet time of the year for jewelery demand.
Separately, purchases by the central banks almost equaled the Q3 2014 record as gold’s diversification benefits continue to be recognized. The increased transparency that comes from the publication of China’s reserve data is a welcome addition to the market – although Russia still remains the most significant buyer. These factors combined, illustrate the diversity of gold demand and the broad range of factors that underpin it.”
Gold demand and supply statistics for Q3 2015:
• Overall demand increased by 8% year-on-year to 1,121t.
• Total consumer demand – made up of jewelery demand and coin and bar demand – totalled 928t, up 14%.
• Global investment demand saw a significant rise of 27% to 230t, up from 181t in Q3 2014. This was led by the US which saw a surge in bar and coin demand, up 207% to 33t from 11t on the same period last year, with support from China, up 70% to 52t and Europe up 35% to 61t.
• Global jewelery demand for Q3 2015 was up 6% year-on-year to 632t compared to 594t in Q3 2014. In India, demand was up 15% to 211t and China was up 4% to 188t. The US and the Middle East also saw gains, up 2% to 26t and 8% to 56t respectively.
• Central bank demand reached 175t, the 19th consecutive quarter of net purchases.
• Demand in the technology sector declined 4% to 84t as the sector continued to endure pressure, with the industry choosing to shift towards alternative, cheaper materials in technological applications.
• Total supply was 1,100t in Q3, up 1% year-on-year. Total mine supply (mine production + net producer hedging) remained relatively flat up 3% year-on-year to 848t compared to 814t in the same period last year. Year-on-year quarterly mine production shrank by 1% to 828t in Q3 2015 against 836t in Q3 2014. Recycling levels were down 6% year-on-year to 252t compared to 268t in Q3 last year.
Low carbon world needs $1.7trn in mining investment
According to a new report from consultancy Wood Mackenzie, mining companies need to invest nearly $1.7trn in the next 15 years to help supply enough copper, cobalt, nickel and other metals needed for the shift to a low carbon world.
Cutting carbon emissions
The United States, Britain, Japan, Canada and others raised their targets on cutting carbon emissions to halt global warming at a summit in April hosted by US President Joe Biden.
Meeting those targets will need large-scale deployment of electric vehicles, storage for power generated from renewables and electricity transmission, all of which require industrial materials, such as lightweight aluminium and metals used in batteries such as cobalt and lithium.
Wood Mackenzie analyst Julian Kettle calculated miners needed to invest about $1.7trn during the next 15 years to “deliver a two-degree pathway - where the rise in global temperatures since pre-industrial times is limited to 2°C”.
“At an industry level, there seems to be reticence around investing sufficient capital to develop future supply at the pace and scale demanded by the energy transition (ET),” he said.
Mining firms are wary of making heavy investments after their experience of the last decade when they invested in new capacity just as demand peaked, leading to a collapse in prices and revenues. They also need to please investors, who are unlikely to want to see dividends diverted to capital spending.
Rising demands of investors related environment, social and governance (ESG) issues further add to the challenge.
Australia, Canada and Western Europe carry a low ESG risk but some of the best resources are in high-risk areas, such as Democratic Republic of Congo, which sits on about half the world’s cobalt reserves according to the U.S. Geological Survey. “Given the need to meet tough decarbonisation and ESG targets, Western governments, lenders, investors and consumers will need to get comfortable operating in jurisdictions where ESG issues are more complex,” Kettle said.
Kettle said government support was needed to help miners comply with ESG issues to ensure production from high-risk areas was conducted in an acceptable way to consumers.
“Then, and only then, will the West be able to secure sufficient volumes of the raw materials needed to pursue the energy transition in the timescales envisaged.”