Gold Demand in Q3

November 12, 2015

Today, the World Gold Council published a new edition of its quarterly report on gold demand. What does Gold Demand Trends Q3 2015 say about the demand for gold in the third quarter of 2015?

The headline news is positive, as the gold demand increased 8 percent. However, that jump was driven mainly by demand for jewelry, bars and coins, while the ETF holdings declined. Thus, the third quarter was weaker than the headline suggests. Let’s dig deeper into the report.

Jewelry demand grew 6 percent, while purchases of bars and coins surged 33 percent. Consumers are price-sensitive and they seize the opportunity created by the drop in prices in July. As we pointed out in the July Market Overview, consumers are price takers, not price setters. Therefore, they do not drive the price of gold, which is shaped by investment demand. The World Gold Council accidentally admitted this, writing that Western investors first caused the drop in the price of gold due to the anticipation of a Fed hike during the summer, and later provoked the rise in August as the expected timing of an increase in US interest rates was pushed back due to global equity market turmoil:

After a stable second quarter, ETF selling and bearish speculative investor positioning helped drive the gold price down in July. (…) Having hit a low of US$1,080.8/oz in July, the gold price did a swift about-turn in August. Western institutional investors, such as hedge funds and asset managers, were the driving force behind the rebound.

The most important news is probably the fact that ETF holdings declined by 65.9 tons. The monthly breakdown is more promising, as ETF outflows of 71.8 tons in July turned to marginal inflows in August and September. October was the third successive month of inflows, but we bet that we will see outflows in November due to the increases odds for a Fed hike. Brace for ETF outflows, the Fed hike is coming!

How did other categories perform? They do not drive the price of gold, but we note them as a duty of a chronicler. Central banks’ purchases fell by 3 percent, but only because the third quarter of 2014 was very strong. Central banks continue to build their holdings of gold, which confirms that gold remains the important official reserve asset. Interestingly, the UAE become a new name to add to the list of those building gold reserves. Technology demand declined 4 percent, which reflects the long-term substitution trend from gold to less costly materials. The supply of gold from mine production dipped by 1 percent in the third quarter (mainly due to declining output from old mines), while recycling decreased 6 percent, due to the drop in gold prices in July.

Summing up, we were right that the WGC’s outlook presented in August was too optimistic. The WGC overstates the role of jewelry demand. In reality, consumers and retail buyers do not drive the price of gold. The most important is investment demand, which has not been strong recently. This is why the overall report is much weaker than the headline news.

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Thank you.

Arkadiusz Sieron

Sunshine Profits‘ Gold News Monitor and Market Overview Editor

Arkadiusz Sieroń received his Ph.D. in economics in 2016 (his doctoral thesis was about Cantillon effects), and has been an assistant professor at the Institute of Economic Sciences at the University of Wrocław since 2017. He is a board member of the Polish Mises Institute of Economic Education, author of several dozen scientific publications (including in such periodicals as the Journal of Risk Research, Prague Economic Papers, Quarterly Journal of Austrian Economics, and Research in Economics), and a regular contributor to and His two books, Money, Inflation and Business Cycles and Monetary Policy after the Great Recession, are both published by Routledge. Arkadiusz is also a certified Investment Adviser, a long-time precious metals market enthusiast, and a free market advocate who believes in the power of peaceful and voluntary cooperation of people.

The purity of gold is measured in carat weight.

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