In Q3 2023, gold demand increased by 3 percent year-over-year. It even managed to touch a great milestone of 1,313 tonnes, becoming a debut highest. This jumps stands as the largest quarterly number ever reported in history. The World Gold Council points to a handful of trends stimulating this expansion. These have been largely driven by geopolitical uncertainties and a more favorable investment environment for gold.
Further complicating factors is the fact that during the same time period gold supply increased by 3 percent. This increase was due to a 2 percent increase in mine production. This increase in production wasn’t enough to stop variation in total demand. Specifically, global jewelry demand dropped to 371.3 tonnes, a 19 percent decrease from the previous year. In fact, demand for gold bars and especially coins exploded last year, totaling a record 315.5 tonnes. This amazing growth made it a 17 percent increase from last year.
In this consumption category, demand driven by investment amid a rising gold price environment contributed largely to gold’s total consumption growth. This includes both the net investment demand and the overall investment demand for gold by the third quarter totaled 537 tonnes. This new rush comes on the heels of a number of unique market forces. For the quarter, the average gold price was $3,456—an extraordinary 40 annual percent increase compared to last year and a 5 percent increase versus the prior quarter.
One other big factor has been the role of central banks around the world in fuelling demand for gold. In the last quarter, Q3, they added a stunning 220 tonnes of gold to their reserves. That’s a whopping increase of 28 percent over the second quarter. That brings total central bank purchases in 2023 so far to 634 tonnes. Interestingly, the Chinese central bank is believed to be the fifth largest holder of monetary gold, with more than 5,000 tonnes.
So even with robust investment demand, the third quarter ended up being a difficult period for some parts of the gold market. By contrast, demand for gold in technology and industry slipped further by a modest 2 percent—82 tonnes. Thirdly, electronics demand was stagnant on the year, at 69 tonnes. Consequently, analysts observed that Q3 was the weakest quarter for gold since the pandemic low in 2020.
A 6 percent y-o-y increase in recycling helped to drive an overall increase in gold supply. This trend reflects continuing attempts to keep up with current demand and creating supply through various other means rather than just mining more.
“The investment-friendly environment for gold that has persisted throughout the year so far remains in place for now, given still-heightened geopolitical uncertainty, ongoing U.S. dollar weakness and expectations for future U.S. rate cuts.” – World Gold Council
Investments in gold have quickly become some of the most profitable this year. This year’s new investment has jumped to $161 billion. That’s a huge jump from the $63 billion logged during the same time last year. This is a mind-boggling jump of 74 percent over the previous record of $92 billion made in the year 2020.
Furthermore, ETFs around the world injected 222 tonnes of gold into their holdings in Q3. This robust activity focuses on a continuing trend where investors are looking for safe-haven assets with current and increasing market volatility.
World Gold Council analysts noted this wasn’t business as usual, rather an indication that risk and uncertainty in U.S. assets remain acute. They noted that “close to the range seen over the past three years on continued elevated trade-related risks and uncertainty premia in U.S. assets” continues to drive investor interest in gold.
Looking forward, analysts are bullish on a continuing trend of investment in gold. Nonetheless, equity markets are richly valued and a lot of geopolitical uncertainty remains. Because of this, gold is an important hedge helping to diversify investments and protect against a possible correction in these markets.
“Investment for the first nine months of the year amounted to $161 billion – well over double that of the same period last year ($63 billion) and 74 percent above the prior $92 billion record from 2020.” – World Gold Council