Gold Demand Remained at a Record High in the Second Quarter

The World Gold Council (WGC) reported that global demand for gold reached another record high in the second quarter, primarily fuelled by ongoing purchases from central banks and over-the-counter (OTC) transactions.

According to the WGC, global gold demand increased by 4 percent, reaching 1,258 tonnes in the second quarter of this year. This marks the highest second-quarter figure since the Council started collecting market data in 2000.

Read more on the topic here: Record breaking demand for gold bullion in 2023

Excluding over-the-counter (OTC) transactions, which occur outside of official markets, demand for gold decreased by 6 percent to 929 tonnes. Still, one should take greater attention to the overall demand estimate. Especially, central banks’ net purchases increased by 6 percent year over year to reach 184 tonnes.

Key drivers in the physical gold market were over-the-counter transactions and central bank purchases, which helped to sustain strong demand and boost the market price of gold to fresh record levels.

Thanks in great part to the fast increase in gold prices, the quantity of recycled gold entering the market peaked during 2012.

The average price of gold in the second quarter was $2,338 per ounce, a 13 percent rise from the first quarter

The Record Price Reduced the Demand for Jewellery

The record-high price of gold bullion started to negatively impact jewellery demand, with volumes dropping 19 percent year-on-year to a four-year low.

While 7 tonnes of gold flowed out of exchange-traded funds (ETFs), this decline was smaller than the 21-tonne outflow seen during the same period last year. The report also highlighted a significant inflow into ETFs in Western markets at the beginning of the third quarter.

Demand for bars and coins dropped by five percent, coming at 261 tonnes

Weakness in Western markets mostly caused this fall. Still, Asian gold consumption is strong. Sales of coins and bars specifically dropped 48 percent in Europe and 65 percent in the US and increased 46 percent in India and 62 percent in China.

The use of gold in technology increased by 11 percent compared to the previous year, primarily due to growth in the artificial intelligence sector.

The World Gold Council (WGC) indicated that increased interest from Western investors is expected to partially compensate for any reduction in net purchases by central banks over the course of the year.

A Tavex Analysts Comment:

“We continue to see developing markets, especially Asia, becoming the dominant force in the gold market. While earlier the gold market was mainly led by Western investors, now Indian and Chinese investors have taken over. Despite the fact that less and less coins and bars are being bought in Europe and the US, prices rose to new records in a row in the second quarter. If the market was driven by a western investor, prices would have fallen.

This is noticeable both among people and among central banks. For example, in the second quarter there were a total of 14 developing countries that increased or decreased their gold reserves by at least a ton. At the same time, there was only one developed country that increased its gold reserves. That was what Poland was for. You can read more about how Poland was hit by a gold rush after the outbreak of the war in Ukraine here. Poland wants to increase the share of gold in the central bank’s reserves to 20 percent, currently it is at 13 percent.

The numbers for the second quarter tell us that when some part of the demand recedes, another area tends to emerge. For example, in the second quarter, the demand for jewelry decreased, but the interest of stock market investors (through OTC and exchange-traded funds) in gold rather increased.”