Gold’s supply and demand in Q3 2022

In the first part of our Q3 Gold Report, we highlighted that rising bond yields and continued US dollar strength were exerting downward pressure on the gold price. Gold fell in each of the three months to end the third quarter down by 8.1%¹. We also reported on other significant macro factors and compared gold’s performance to other asset classes. In this second part of the Gold Report, we explore the various sources of supply and demand to further explain recent movements in the gold price.

Gold demand increased 22.2% in the quarter to 1,182 tonnes supported by increased demand from jewellery purchasers, the largest source of demand, but there was a noticeable increase by central banks, which hit a quarterly record. Investment saw net selling in aggregate as ETFs were heavy sellers in the quarter, though retail investors holding bar and coin increased their purchases. Technology demand represents a lower proportion of demand this quarter as demand from electronic components was lower. Year-on-year gold demand was 28.2% higher due to the jump in central banks’ reserve building.

Jewellery demand increased 14.4% on the quarter, to 523 tonnes, breaking above the pre-Covid average. China regained top-ranking from India when looking at jewellery purchases by country as Covid restrictions impeded activity to a lesser extent. Growth was also strong in India as Diwali falling earlier this year brought forward some associated buying into Q3. From a global perspective, year-on-year jewellery consumption increased 9.8%, encouraged by the lower prices; on average the price of gold was 9.4% lower in Q3 2022 than in Q3 2021. Inventories continued to build over the quarter, as growth in fabrication outpaced demand.

Central bank purchases are estimated to have hit a quarterly record of 399 tonnes, setting up 2022 to be the highest year on record for central bank building gold reserves. Purchasing has been concentrated in emerging markets, which have been at the sharper end of inflationary pressure this year as their spending has a greater weighting towards food and energy. Alongside inflation, the strong USD has caused emerging market central banks, in particular, to increase reserves and that the gold price has fallen through Q3 has further encouraged this policy.

Significant gold ETF selling meant the physical metal behind these funds had to be sold; ETFs sold 227 tonnes in the quarter, 7.0% of their holdings at the start of Q3. 

There was heavy selling in US and European gold ETFs across the quarter with outflows their largest since Q2 2013 when the taper tantrum caused bonds to selloff sharply resulting in higher yields. Asia saw net purchases for the quarter as July saw the strongest inflows in the region since December 2021.

Gold supply expanded again this quarter by 2.9% as mined supply increased by 6.4% to 949 tonnes despite higher operational costs. Although the gold price is lower, it tends to be measured in USD; that USD has been so strong has encouraged recycled gold flow in Japan, Europe and the UK. Overall recycled flow, however, was 5.1% lower on the quarter. Falling gold prices have meant gold producers have been inclined to hedge their production, taking 10 tonnes out of the supply chain this quarter. The year-on-year increase in supply was almost flat, increasing 0.1%.