By Yusuf Khan
Central banks are buying gold in record volumes, as volatile markets and geopolitical uncertainty drives demand for the precious metal, according to a new report from the World Gold Council.
Central banks bought a record net 800 metric tons of gold during the first three quarters of 2023, putting them on course to break last year's record level of 1,136 tons, the industry body said Tuesday.
In the third quarter alone, central banks purchased 337.1 tons of gold--the third strongest quarter in the WGC's data series, which began in 2000.
"Strong central-bank demand confirms our view that the increase last year was not just a one-off," said John Reade, chief market strategist at the WGC. He expects demand to meet or exceed last year, he said.
Much of the buying was led by the People's Bank of China, which added 78 tons during the third quarter and has bought 181 tons since January. However, smaller central banks also bought significant volumes, with Poland buying 57 tons and Turkey adding 39 tons.
Geopolitical uncertainty has been a major driver of central-bank demand, with the current war in Gaza adding further upward pressure, Reade said.
Outside central banks, investment demand was more restrained, standing at 156.9 tons for the third quarter, a 56% increase on year but well below the five-year average of 315 tons.
Bar and coin demand stood at 296.2 tons during the quarter, a 14% drop on year, though demand year-to-date remains in line with 2022, which was the strongest year in nearly a decade.
Meanwhile, exchange traded fund demand remained in negative territory, with outflows of 139.3 tons during the quarter. So far in 2023, outflows stand at 189 tons. This weakness came largely from Western countries, especially Germany as economic concerns hampered demand, Reade said.
Demand for gold jewelry also began to wane due to high prices, with global demand at roughly 516.2 tons during the third quarter. This was 2% lower on year, but year-to-date volumes came in line at 1,462 tons. Gold prices at the start of the week were trading just above $2,000 an ounce.
In India, jewelry demand rose 6% on year to 155.7 tons, but rising prices might dampen demand going forward, Reade said. India is one of the more price-sensitive countries when it comes to buying gold, he said.
Mined production of the metal hit a record level in the third quarter at 971.1 tons, while recycling and producer hedging added a further 288.8 tons and 7.2 tons, respectively. Canada and the U.S. had a significant increases in mined volumes, which were up 14% and 13%, respectively.
However, mining costs are rising due to inflationary pressures, with the cost of sustaining mining operations reaching a record quarterly high of $1,315 an ounce, according to the report.
Write to Yusuf Khan at yusuf.khan@wsj.com
(END) Dow Jones Newswires
10-31-23 0214ET
