World Gold Council: Q3 central banks will continue to acquire gold at unprecedented levels, supporting gold prices

Global central banks have been purchasing gold at an unprecedented rate, which has increased demand for the metal (excluding OTC) to 1,147 tons in the July–September quarter, 8% more than its five-year average, according to the most recent data. The third highest quarter in the World Gold Council’s data series saw net central bank purchases of 337 tons, according to the Q3 Gold Demand Trends report. It was unable to surpass the record 459 tons set in Q3 2022, though.

During the first nine months of this year, central banks have purchased a net 800 tons of gold, which is a record high. Despite a 56% YoY increase, Q3 investment demand of 157 tons lagged behind its five-year average of 315 tons. As a result of significant declines in Europe, bar and coin investment fell 14% YoY to 296 tons, according to the report.

This quarter, central bank net buying returned with a bang, supporting gold prices against rising bond yields and a strong U.S. currency combined with high bar and coin demand. Given the strong underlying case and depressing attitude, the hesitancy of speculative purchasers and ETF investors to aggressively enter the battlefield thus far this year indicates a growing possibility for price strength in Q4, according to World Gold Council.

While demand for gold bars and coins has remained surprisingly strong, investors in gold exchange-traded funds (ETFs) and futures have showed little appetite for the metal. While many investors, especially in Europe, now see growing bond yields as an alternative source of real income, WGC blames the majority of this year’s ETF withdrawals to “weak hands.” According to us, there is still underlying support for gold, which is strengthened by rising geopolitical tension and declining mood as seen in COMEX futures. This offers these categories a chance to revert to net inflows in Q4,” the research stated.

The demand for safe havens in China seems to be driven by geopolitical and economic uncertainty, whereas India’s robust economy is generating wealth-driven consumption. It went on to say that these two elements are not incompatible because they support the long-term performance of gold. Demand in Europe has not yet recovered, but in the U.S., price strength seems to have piqued interest early in Q4. It’s possible that this will result in increased demand throughout Europe as well. The prognosis is somewhat cautious, but there is still some potential.

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