The price of gold has benefited from central bank buying in the first half of 2023, supported by strong markets and high jewellery demand, according to the World Gold Council.
The council’s latest Gold Demand Trends report released this month said that gold demand dropped 2 per cent year over year to 921 tonnes during Q2, although total gold demand is up 7 per cent globally year over year, pointing to a strong global gold market.
In the second quarter, the demand for gold by central banks decreased compared to the previous year, reaching 103 tons. This drop was mainly due to Turkey selling some of its gold because the presidential elections, high inflation and currency weakness all contributed to drive up demand.
However, despite this decrease, central banks globally bought a record amount of gold in the first half of the year, totalling 387 tons. The demand for gold from central banks in the second quarter aligns with a positive long-term trend, suggesting that their buying activity will likely stay strong throughout the year.
The demand for gold bars and coins increased by 6 per cent compared to the same period last year, reaching 277 tons in the second quarter. In the first half of the year the total demand for these types of gold reached 582 tons.
This growth was seen in important markets like the United States and Turkey. The amount of gold outflows from gold-based Exchange-Traded Funds (ETFs) decreased from last year with 21 tons, which is less than the 47 tons from the same period in 2022. In the first half of 2023, the net amount gold outflows from ETFs totalled 50 tons.
Chart via World Gold Council.
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Demand for jewellery strong despite higher gold prices
Mining production also rose by 4 per cent, including companies like Vancouver-based Calibre Mining (TSX: CXB) (OTCQX: CXBMF), which recorded a 15 per cent increase in gold production in Q2 2023 compared to the same time last year.
Additionally, B2Gold Corp (NSX: B2G)(NYSE: BTG)(TSX: BTO) produced 262,000 gold ounces in Q2, 2023, which was a 17 per cent increase over its totals from from Q2, 2022.
Also, Alamos Gold Inc. (TSX: AGI) (NYSE: AGI) increased its gold production due to its operations it the Mulatos District in Sonora, Mexico. The company smashed its quarterly guidance of 120,000 ounces by 13 per cent.
Despite higher gold prices, the consumption of gold for making jewellery remained strong. In the second quarter, there was a 3 per cent increase in jewellery consumption compared to last year. In the first half of the year, a total of 951 tons of gold were used for making jewellery. This increase was supported by a rise in demand for jewellery in China and Turkey.
“Record central bank demand has dominated the gold market over the last year and, despite a slower pace in Q2, this trend underscores gold’s importance as a safe haven asset amid ongoing geopolitical tensions and challenging economic conditions around the world,” said Louise Street, senior markets analyst at the World Gold Council.
Additionally, the total supply of gold increased by 7 per cent compared to the previous year, reaching 1,255 tons in the second quarter. The production of gold from mines also hit a new record in the first half of the year, estimated at 1,781 tons.
Jewellery and investment demand helped offset slower central bank buying in Q2.
Chart from the World Gold Council.
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China bumps its gold purchases in July
China increased the amount of gold it holds for the ninth consecutive month in July. The People’s Bank of China acquired about 23 tons of gold, which is equivalent to 740,000 troy ounces, raising the country’s total gold reserves to 2,137 tons.
This trend of buying gold began in November, and since then, China has added around 188 tons to its reserves.
China has been buying gold to diversify its holdings and support the value of this precious metal. This strategy has helped keep gold prices stable, even though interest rates have been rising globally. Usually, when interest rates go up, there’s less demand for assets like gold that don’t provide any interest earnings.
The World Gold Council believes that the gold prices for this year will be influenced by the gold purchases made by central banks, including China. While the pace of these purchases might slow down compared to last year, central banks are still expected to continue adding to their gold reserves. This trend began when many countries sought alternatives to the US dollar due to events like Russia’s reserves being sanctioned after its involvement in Ukraine.
Additionally, China’s overall foreign currency reserves grew to $3.204 trillion in July. This represents a 3.2 per cent increase compared to the previous year and a 0.4 per cent increase from the previous month.
The price of gold decreased by 1 per cent on Wednesday and is trading at approximately USD$1,936.81 per ounce.
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