Gold’s supply and demand in Q2 2023

In the first part of our Q2 Gold Report, we explained how the market’s expectations of further Fed tightening weighed on the gold price during the quarter. The gold price ended Q2 with a 2.5% decline¹. 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.

Total gold demand fell 19.4% in the quarter to 921 tonnes when excluding over-the-counter derivatives. This was the lowest quarterly demand since Q4 2020 when Covid restrictions interrupted demand and corroborates with the price performance of gold as it lost 2.5% in Q2 2023. Demand was lower across all segments though notably in ETFs where outflows from funds meant ETFs were again net sellers of gold in the quarter.

In terms of share of demand, jewellery dominated the quarter, accounting for more than 50% of the total gold demand base albeit this was a consequence of the other main demand bases shrinking faster. Central bank demand share was significantly softer falling to 11%; central bank demand share has been consistently strong of late and constituting 25% (revised down from initial estimates of 32%) of gold demand share in the previous quarter. In absolute terms, technology demand has remained at 70 tonnes as retail investment excluding ETFs increased its demand share from last quarter’s revised figure of 27%.

Quarter-on-quarter, jewellery demand fell 4.0%, an improvement on Q1 2023 when demand fell 15.0%. The improvement in trend is due to the lower average price of gold although the metal remains at historically high levels; however, the Q2 2023 demand is appropriate for the level of price based when modelling on a 10-year-history. Using a year-on-year comparison, Q2 2023 jewellery demand is lower than that of Q2 2022 by 0.4%, again as expected, given lower gold prices over the same period in 2022.

Breaking down jewellery demand by region, China continued to be the largest purchaser although demand there had fallen 32.4% to 132 tonnes. Given seasonal impacts, the better relative figure is Q2 2022 and from this point there was actually an increase in demand of 28.2%. India was again the second largest market for gold jewellery but there was a 64.0% quarter-on-quarter improvement to 129 tonnes. Again, adjusting for seasonality by comparing with Q2 2022, the most recent quarter was 8.3% behind.

Central bank demand was again notably softer in Q2 2023 as demand continued to retreat from the record-breaking Q3 2022 of 459 tonnes; central bank demand was 63.8% lower quarter-on-quarter but also 35.1% lower than the same period last year when central banks began building their reserves, specifically in bullion to diversify away from the USD.

On current data – central bank data is subject to significant estimation – China is showing to be the largest purchaser of gold so far this year adding 103 tonnes with the Monetary Authority of Singapore again adding marginally in Q2 to take its H1 2023 total to 73 tonnes and make it the second-largest purchaser in the first half of the year. Of perhaps more interest is the actions of the central bank of Turkey, which became a seller of gold reserves domestically to meet investor demand as gold imports were banned and investors were looking for stores of value amid political uncertainty.

Known ETF holdings of gold fell 0.6% in Q2 2023 as the underlying gold price fell 2.5%. Typically, the gold price has been strongly correlated with the holdings by ETFs; however, that relationship broke down into the back end of 2022. One argument for this has been a preference to hold physical gold in the investors’ own jurisdiction relating to the implementation of Russian sanctions. The muted outflows from ETFs in Q2 may indicate that this trend is over.

Looking at ETF flows by region, Q2 2023 delivered inflows in North America of 9 tonnes despite heavy selling in June. June also saw heavy selling by European funds and given the limited action in April and May, European funds were net sellers of 29 tonnes for the quarter in aggregate. Asia funds saw inflows across the quarter, but this resulted in only an additional tonne of gold demand as other areas were net sellers of 4 tonnes.

Q2 2023 mined supply expanded a further 7.7% in the quarter to 923 tonnes and was 3.8% higher than the total mined in Q2 2022. Combining the Q2 tonnage with that mined in Q1 gives the strongest start to a year from mined supply on record.

The quarter-on-quarter amount of gold supply from recycled material increased 3.4% as although prices fell, they remain relatively high, and consumers may have also been encouraged to sell their gold as they continued to be squeezed by higher inflationary pressures. Price-sensitive hedging added a further 10 tonnes to supply this quarter, although this was lower than the 36 tonnes estimated for Q1 2023.