Data from the World Gold Council suggests a mixed picture for gold demand in the first quarter of 2023. While there was continued momentum in central bank buying and resurgent Chinese consumer demand, there were negative contributions from ETFs and weakness in India.
In terms of overall gold demand, it was 13% lower compared to the same period last year, amounting to 1,081 tonnes. However, when including over-the-counter (OTC) transactions, total gold demand strengthened by 1% year-on-year, reaching 1,174 tonnes. This increase was driven by a recovery in OTC investment, which offset weakness in other areas.
Source: World Gold Council
Demand from central banks saw significant growth during the quarter, with official sector institutions adding 228 tonnes to global reserves. Bar and coin investment also experienced a 5% year-on-year gain, reaching 302 tonnes, although there were regional variations. On the other hand, there was a net negative demand for ETFs, resulting in a substantial decline compared to the inflows seen in the first quarter of 2022.
Global jewellery consumption remained virtually flat at 478 tonnes, with jewellery fabrication exceeding consumption as stock building added over 30 tonnes to global inventories. Gold used in the technology sector continued to suffer due to the challenging economic climate, reaching its second-lowest quarter since 2000 at 70 tonnes.
In terms of supply, there was a marginal increase in total gold supply during the first quarter, primarily driven by modest growth in both mine production (2%) and recycling (5%). The higher gold prices contributed to the uptick in recycling, while mine production was influenced by various factors such as project expansion in North America and labour strikes in South Africa.
Investment is expected to dominate year-on-year changes in demand, with positive prospects for ETFs due to recession risks and waning interest rate headwinds. Bar and coin demand are expected to continue at a good pace, although Indian weakness and European demand slowdown could weigh on the overall expectation. Fabrication demand, including jewellery and technology, may face risks as the global growth slowdown continues. Central banks are likely to continue their strong buying trend, albeit at a lower level compared to 2022.
Supply is projected to rise slightly, driven by increased mine production and recycling, although the pace of recycling is expected to fade. Geopolitical risks and high gold prices have encouraged individuals to hold onto their gold, resulting in a moderate increase in recycling. However, the overall outlook remains positive for recycling and supply.
We continue to see gold as an attractive risk diversifier for a small component of portfolios, particularly during periods of political tension and economic uncertainty.
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