Gold consumption sees rebound amid global uncertainties, recovery

A potential economic rebound and consumers' recognition of gold's role as a store of value is expected to spur growth in demand for the precious metal in China in the fourth quarter, following a demand surge in the third quarter, experts said.

The comments came after the World Gold Council released its third-quarter demand trend report on Tuesday, which revealed a rebound in gold consumption in the Chinese market.

Demand for gold jewelry in the third quarter jumped 58 percent from a weak second quarter to 163 metric tons, and was up nearly 5 percent year-on-year, marking the strongest third quarter since 2018.

"The rebound in domestic economic growth and household disposable income compared to the second quarter laid the foundation for a quarter-on-quarter recovery in gold jewelry demand in the third quarter. Easing of gold prices from their first-quarter high also plays an important role," said Wang Lixin, regional CEO of the WGC (China).

"More importantly, an increasing number of consumers started to recognize gold's role as a store of value, which is also an important reason for the gold demand recovery," Wang said.

Wang predicted that demand for gold jewelry in the fourth quarter may show a single-digit quarter-on-quarter increase buoyed by traditional holidays and local government measures to boost consumption.

"These factors will also drive up demand for gold bars and coins for investment purposes, facing the possibility of a global recession, rapid interest rate hikes in other economies and geopolitical risks. Meanwhile, commercial banks are increasing their focus on physical gold sales," he said.

The WGC report said against the backdrop of pandemic uncertainty and possible renminbi depreciations, consumers' willingness for precautionary savings remained at a record high.

According to the WGC, in the third quarter, the gold bar and coin market showed a significant recovery, with a total volume of 70 tons, up 87 percent quarter-on-quarter and 8 percent year-on-year. Similar to jewelry demand, sales of gold bars and coins in the third quarter were the highest since 2018.

China's holdings of gold exchange-traded funds (ETFs) stood at 58 tons at the end of September, which was valued at $3.2 billion, after a modest increase of 1 ton in the third quarter.

"However, similar to jewelry demand, the uncertainty of the COVID-19 resurgence and potential travel restrictions could affect sales of gold bars and coins to some extent, as these physical gold products are often sold offline," Wang said.

On a global scale, gold demand — excluding the over-the-counter market — in the third quarter hit 1,181 tons, up 28 percent year-on-year. Strong demand pushed the year-to-date total to its pre-COVID levels, the WGC said.

Gold demand was bolstered by consumers and central banks, although there was a notable contraction in investment demand, it said.

Investment was down 47 percent year-on-year, as ETF investors responded to a challenging combination of markedly higher interest rates and a strong US dollar, according to the WGC.

However, gold continued to hold favor with retail investors who reacted to different market cues and turned to gold for its status as a store of value amidst inflations and geopolitical uncertainty. Investors sought to hedge inflation with bar and coin investment, driving total retail demand up 36 percent year-on-year.

Jewelry consumption continued to rebound and is now back to pre-pandemic levels, reaching 523 tons, which was 10 percent higher compared to the third quarter of last year. Central bank buying picked up significantly with estimated record purchases of nearly 400 tons in the third quarter, WGC said.