Gold’s supply and demand in Q3 2023

In the first part of our Q3 Gold Report, we review how the gold price fared and touch upon other asset classes, as well as explore significant macro factors, including bond yields, the US Dollar and inflation expectations. 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 15.5% quarter-on-quarter, recovering from the weak second quarter this year. Gold consumption was 1,148 tonnes this quarter, the highest since Q4 2022. The stronger demand in the quarter is expected, given the 3.7% price fall over the three months. The macro-outlook over the quarter had been a drag on the performance of the metal, consequently causing redemptions of gold-backed ETFs which saw them as net sellers to the tune of 139 tonnes in the quarter.

This was another strong quarter of central bank purchases; Q2 demand was revised up to 18% from 11% as Q3 central bank flows are estimated at 28% of total demand share. Jewellery remains the largest market, taking 42% of gold consumption. Retail demand, as measured by total bar and coin purchases, increased 7.0% quarter-on quarter but at 296 tonnes was responsible for 24% of the total. Technology purchases also increased 7.0% in the quarter, but this was only 75 tonnes of the total demand.

Jewellery demand increased 8.5% this quarter, as lower prices encouraged purchasing. However, compared to recent history, demand was stronger than what would have been expected given the price level. Year-on-year jewellery demand is 1.8% lower. As jewellery demand is the most seasonal of all the gold-demand segments it’s helpful to compare the same period last year; in doing so, jewellery demand is marginally higher in the recent quarter compared to Q3 2022 when jewellery demand increased 8.4%.

Breaking down jewellery demand by region, China continues to be the largest purchaser via the jewellery channel, as it has been all year. The Qixi festival (China’s Valentine’s Day equivalent) caused jewellery consumption to rise there by 12.4% quarter-on-quarter to 164 tonnes. India was the second highest purchaser with 156 tonnes, an increase of 21.1% on the previous quarter as the upcoming Diwali festival sees increased purchases.

Central bank purchases of gold were almost double this quarter, compared to the previous quarter, rising to an estimated 338 tonnes as Q2 2023 flows were revised up to 175 tonnes. This is the third highest quarter on record behind Q3 and Q4 of last year. Emerging market central banks have been a significant purchaser of gold over the last 12 months, with the higher inflation environment cited as one of the reasons for adding to gold reserves. Despite the improving inflation outlook the emerging markets continue to buy in size.

China was the largest purchaser in the quarter adding an estimated 78 tonnes to its reserves, but this keeps it ranked sixth on a global comparison, behind the US, Germany, Italy, France and Russia. China has added 9.1% to its gold reserves year-to-date. Poland was the second largest buyer adding another 57 tonnes this quarter. Since the start of the year Poland has increased its gold reserves by 45.9% as it reaches its target of increasing its stock to the European average. Turkey was the third-placed largest buyer in the quarter as it looked to reverse some of the selling from the previous quarter; Turkey’s central bank bought 39 tonnes.

Heavy selling of gold-backed ETFs saw them as net sellers of gold this quarter, with a 5.1% outflow of gold stocks. Despite the selling by ETFs, the impact on the gold price was limited by demand from other segments. ETFs have greater sensitivity to financial markets and, with the higher-for-longer mantra, investors allocated their portfolios away from the non-yielding asset at a time when it was hard to generate returns that rivalled what cash provided.

North American funds saw the largest redemptions but there were also sizable sales in European funds. This contrasts with the picture in Asia where gold ETFs saw inflows and consequently had to expand their gold stocks. Inflows into Asian gold ETFs were at their strongest since Q1 2021.

Total gold supply was at its highest since September 2020 at 1.267 tonnes. This was 4.2% higher than the previous quarter and a higher rate of growth than experienced at the same time last year (1.2%). This continues to make 2023 the strongest year of supply on record.

Mined supply continued to be the largest source of supply at 971 tonnes this quarter, a 6.4% increase quarter-on-quarter. Net producer hedging added 7 tonnes to supply, which although small, is a change in direction from Q2 when supply was reduced as producers were largely indifferent to forward prices in Q3. Recycled gold supply fell 10.6% on the quarter, as inflation pressures eased and holders were less motivated to sell their stock as prices were lower. Recycled gold supply was 289 tonnes in this quarter.