Gold Demand Hits Pre-Pandemic Levels, Increasing 28% in The Third Quarter despite Dismal Investor Interest—World Gold Council
The comments below are an edited and abridged synopsis of an article by Neils Christensen
Despite bearish sentiment in futures markets and outflows in exchange-traded products, there was still solid demand for physical gold in the 3rd quarter, according to the World Gold Council.
The WGC said that physical gold demand totaled 1,181 tonnes in the 3rd quarter, increasing 28% from last year. At the same time, year-to-date gold demand is up 18% compared to the first nine months of 2021.
Juan Carlos Artigas, head of research at the WGC, said that global gold consumption has returned to pre-pandemic levels, driven by increases in demand for bars, coins and jewelry, and consistent purchases from central banks.
Retail consumers bought 351 tonnes of bullion from July to September, an increase of 36% compared to the 3rd quarter of 2021.
Strong physical demand is one reason why gold has been one of the best-performing assets this year. Aggressive global central bank monetary policy tightening has weighed on gold; however, gold’s losses need to be put in the broader market context. The precious metal has outperformed equity and bonds, Artigas said.
According to the WGC, with 10-year yields trading above 4% and the US dollar holding near its highest level in 20 years, gold should be trading down 30%.
Artigas said that investors are starting to recognize gold’s performance, and sentiment appears to be shifting. He says that some of the traditional headwinds for gold are starting to ease.
The biggest hurdle for gold this year has been the Fed’s aggressive monetary policy stance. While it is not expected to end the rate hike cycle anytime soon, Artigas said that it is getting closer to its terminal rate.
Although gold is responding to short-term weakness in ETF and futures markets, retail investors are using bullion and jewelry as long-term safe haven and wealth preservation assets.
Another plus for gold is the official sector, as central banks diversify away from the dollar and increase their exposure to gold. Central banks bought nearly 400 tonnes of gold in the 3rd quarter, up 300% from last year.