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World Gold Council: Central Bank buying running at 6% ABOVE the five year average in Q3 2014

Last quarter (Q2) we reported that central bank gold buying had increased by 28% from the same time last year. Well it appears that central bank buying doesn’t look like letting up anytime soon as the World Gold Council reports (download full report here) that central bank gold buying in Q3 was some 6% above the five year average.

From the WGC Q3 2014 report:

With many economic and geopolitical wounds still open, central banks once again sought the protection and diversification of gold. Net purchases of 92.8t in Q3 brought year-to-date net purchases to 335t, in line with 2013 over the same period (324t). Signs are that 2014 will be another solid year of strengthening reserves with gold.

With Russia leading the charge:

Similar to recent quarters, purchases were mainly from the Commonwealth of Independent States (CIS) (Chart 6). Russia (55t), Kazakhstan (28t), and Azerbaijan (7t) continued to add significantly to their gold reserves. The IMF pruned its growth forecasts in October, recognising that increased downside risks are prevalent: larger gold allocations would provide a buffer in the face of a potential slowdown. 

Russia buying up gold(click for sharper image)

And it seems that global central banks are reluctant to sell any gold at the moment:

While purchases were sizable, the same cannot be said for sales. Gross sales over the quarter amounted to a paltry 4t.

With central banks not looking keen to sell much gold in the future:

The third Central Bank Gold Agreement (CBGA) drew to a close in September. Only 207t of gold, out of a possible of 2,000t, were sold during the 5-year period; with the majority of these sales (181t) conducted by the IMF as part of its limited sales programme. As the fourth agreement gets underway, the signatories will almost certainly maintain their lack of interest in gold sales.

And here are the other components of the report – first up jewellery demand:

In an otherwise quiet quarter, Indian jewellery was a highlight. Demand jumped 60% to 182.9t. This was the second highest Q3 on record (Q3 2008 pips it to first place, when demand jumped following a steep price decline). True, base effects flatter the year-on-year comparison. The third quarter of 2013 was decidedly weak as the introduction of complicated new measures to restrict gold imports and the subsequent sharp rise in local prices knocked demand. But this quarter, other more positive forces were also at play.

And we can see the trend for Indian gold demand drifting higher the past few quarters:

Chart 1 Indian jewellery benefitted from improved economic sentiment(click for sharper image)

Tech demand:

The tug-of-war between improving economic sentiment and ongoing substitution continued to pressurise gold demand for technological applications. Demand in the third quarter totalled 97.9t, 5% lower than the same period in 2013.

This divergence was no more apparent than in the electronics segment, where demand contracted by 5%. On one hand, the semiconductor market is strengthening as demand for consumer electronics trends higher. This growth is reflective of an improving and more stable global economy, although economic concerns surrounding Europe and China have hampered demand in those regions.

It would appear that fears of another global slowdown/recession are showing up in the tech demand for jewellery.

Investment demand:

 As discussed in the Executive summary, subdued investment demand contributed to the relatively stable price environment during the quarter – and vice versa. Net investment of 204.4t in Q3 2014 was 6% higher than in the year-earlier period.

Retail demand for gold subsided as investors continued to digest last year’s price-driven surge in demand for bars and coins. It is important, however, to analyse the bar and coin market over a longer time frame. Third quarter demand of 245.6t was remarkably close to the 10-year quarterly average of 240.6t. Comparing the latest investment numbers with pre-crisis levels shows that demand from this sector is still at multiples of its historic levels: quarterly average demand from 2003-2007
was just 92.2t.

However ETF demand remains in the doldrums:

There was, however, little during the quarter to encourage fresh investment in ETFs as investors kept their gaze locked on the US economic scenario. The prospect of US interest rates remaining low ‘for a considerable time’ and the widely- anticipated end to quantitative easing (QE) by the Federal Reserve eclipsed all other considerations. The soundness of gold’s underlying fundamentals was widely acknowledged, but in itself offered little fresh impetus to drive an increase in investor positions.

Europe gold demand still remains elevated compared to the pre-crisis level

Chart 5 European bar and coin demand, rolling 4-quarter total(click for sharper image)

All-in-all this is how the WGC summed-up the health of the gold market:

Demand for gold was 929.3 tonnes (t) in Q3. Jewellery demand softened by 4% year-on-year, but continued to perform well in a longer term context. Net investment demand increased by 6%, reaching 204.4t. Technology demand dipped to 97.9t as substitution again eroded gold usage. Central banks added a further 92.8t to their coffers. Supply was down 7% in Q3; little changed year-to-date. 

Q3 was a subdued quarter for the gold market. The data bears this out: gold demand eased down by 2% and the gold price was relatively stable. Quarterly volatility in the US$ gold price was among the lowest levels seen over the past two decades.1 This was both a cause and effect of the benign demand environment. Investor behaviour in particular contributed to this circularity: the lack of a clear price signal caused investors to hold back from buying gold, which in turn dampened down price moves.

It would appear that the gold market is still waiting for a ‘catalysing event’ to turn the global sentiment higher and with it the price – however, one doesn’t have to look to hard round the globe to find possible ‘catalysing events’ hiding under nearly every economic/political rock.

 

 

 

Link to this article: : http://www.goldmadesimplenews.com/gold/world-gold-council-central-bank-buying-running-at-6-above-the-five-year-average-in-q3-2014-12771/

Posted by on Nov 19 2014. Filed under Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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