The decline came as Indian jewellery demand fell by half, while Chinese consumption was also weaker.
A strong 21 per cent growth in global investment demand for gold in the third quarter partially offset an overall demand plunge for the yellow metal, according to the World Gold Council’s latest Gold Demand Trends report.
Global gold demand dropped by 19 per cent year-on-year to 892 tonnes in Q3 even as central banks became net gold sellers for the first time since 2010 as some producing nations exploited near-record prices to soften the blow from the coronavirus pandemic.
The effects of the pandemic further impacted the jewellery sector. While the weakness caused by Covid-19 was compounded by record gold prices, third quarter jewellery demand fell 29 per cent y-o-y to 333 tonnes. While China and India accounted for the largest volume declines, weakness was global.
Total supply of gold declined 3.0 per cent year-on-year as mine production remained depressed, even after Covid-19 restrictions were lifted in producers like South Africa. A quarterly uptick in recycling softened the decline, with consumers cashing in on high prices.
The demand plunge was the lowest quarterly total since Q3 2009. The year-to-date demand of 2,972.1 tonne was 10 per cent lower versus the same period in 2019, WGC report said.
Net sales by central banks totalled 12.1 tonnes of bullion in the third quarter, compared with purchases of 141.9 tonnes a year earlier. Selling was driven by Uzbekistan and Turkey, while Russia’s central bank also posted its first quarterly sale in 13 years. The central banks of Turkey and Uzbekistan sold 22.3 tonnes and 34.9 tonnes of gold, respectively, in the third quarter, the WGC said.
Gold rallied to a record during the quarter, even as overall bullion demand fell 19 per cent year-on-year to the lowest since 2009, the WGC said. That decline came as Indian jewellery demand fell by half, while Chinese jewellery consumption was also weaker.
Gold price rose to a record high of $2,067.15 per ounce in early August. This was followed by a pullback with the price closing the quarter around $1,900/oz. Record high prices were also seen in various other currencies, among them the rupee, the yuan, the euro, and sterling.
“It’s not surprising that in the circumstances banks might look to their gold reserves,” said Louise Street, lead analyst at the WGC. “Virtually all of the selling is from banks who buy from domestic sources taking advantage of the high gold price at a time when they are fiscally stretched.”
“The impact of Covid-19 is still being felt in the gold market across the world. 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,” said Street.
“However, looking to the investor landscape we saw further record inflows into gold-backed ETFs in Q3, taking the global total to a record high. 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,” said Street.
Investors globally bought 222.1 tonnes of gold bars and coins and an additional 272.5 tonnes through gold-backed ETFs. Year-to-date, gold ETFs have increased their holdings by a record 1,003 tonnes.