Gold demand propped up by record central bank buying
Gold demand has been bolstered record buying from central banks over the first six months of trading this year amid challenging economic conditions, according to the latest trends report from the World Gold Council.
The market development group revealed that while central bank net buying slowed to 103 tonnes in the second quarter – down 35 per cent year on year – it was still the highest first half of buying in the council’s records since 2000, totalling 387 tonnes over the six months.
Sales were driven by net offloads in Turkey, but quarterly demand is in line with the longer-term positive trend – indicating that official sector buying should remain strong throughout the year.
Gold was also supported by robust private investment in the second quarter, up year-on-year 20 per cent to 256 tonnes.
Expectations for investment remains unchanged as strong over-the-counter demand makes up for softness in exchange-traded funds alongside bar and coin.
Jewellery consumption in the second quarter also strengthened modestly year on year, up three per cent to 476 tonnes, despite historically high (if not record) prices in most markets – as demand in China outweighed reduced sentiment in India.
Finally, total gold supply was seven per cent higher year on year, at 1,255 tonnes in the second quarter, with mine production estimated to have reached a record for the six months of trading at 1,781 tonnes.
Louise Street, senior markets analyst at the World Gold Council, said: “Record central bank demand has dominated the gold market over the last year and, despite a slower pace in the second quarter, this trend underscores gold’s importance as a safe haven asset amid ongoing geopolitical tensions and challenging economic conditions around the world.
“Looking ahead to the second half of 2023, an economic contraction could bring additional upside for gold, further reinforcing its safe-haven asset status. In this scenario, gold would be supported by demand from investors and central banks, helping to offset any weakness in jewellery and technology demand triggered by a squeeze on consumer spending.”
Gold prices are elevated at $1,947 per ounce, having climbed to nearly $2,000 per ounce last month as the US Federal Reserve signalled its fight against inflation was coming to an end, with just one final interest hike likely this year.