– Gold coins and bars saw demand rise 17% to 222t in Q3, driven largely by China

– Chinese investors bought price dips, notching up fourth consecutive quarter of growth

– Jewellery, ETF demand fell while gold coins and bars saw increased demand 

– Central banks bought a robust 111t of gold bullion bars (+25% y-o-y)

– Russia, Turkey & Kazakhstan account for 90% of 111t of central bank demand

– Turkey increased gold purchases and saw broad based physical gold demand

– Gold demand in Q3 at eight-year low as ETF inflows slowed sharply 

– Gold demand saw 9% year-on-year (y-o-y) drop in to 915 tonnes (t)

– Total global gold supply fell 2% in Q3

Editor: Mark O’Byrne

By first impressions the latest World Gold Council report could make for pretty dismal reading if one were to consider the headlines that followed its release.

Much of the focus was on the fact that record and reported gold demand was at its lowest last quarter since Q3 2009 and down 9% year-on-year.

This was predominantly down to ETF demand which fell from the very high levels seen last year. ETF gold holdings climb by just 18.9t and jewellery demand which fell by 3%.

When one looks at the real gold investment demand which was strong in both areas – demand for gold coins and bars and central bank demand – then they might have cause to start feeling more positive again.

Chinese demand is firmly back with a bang. Chinese investors bought on price dips, bringing a fourth consecutive quarter of growth. This contributed to a 17% rise in Q3 in gold coins and bar demand.

Physical gold investors weren’t the only ones picking up the pace. 111t of central bank demand marked Q3 bringing total reserve demand to nearly 290t for the year to date. 90% of this demand was thanks to Russia, Turkey and Kazakhstan.

These figures don’t really say much at face value. For example, ETF and jewellery numbers contributing to the 8 year low in gold demand suggest those avenues of investment have fallen out of favour.

However, as with the increase in physical gold investment demand and central bank demand, there is a lot more to the figures than the headlines might initially suggest.

ETF demand to blame?

The headline of the WGC report reads: ‘Gold demand in Q3 at eight-year low as ETF inflows slowed sharply’. Most readers would take from this the first part – gold demand down.

However, ETF demand was merely down not negative. Outflows did not exceed inflows, growth merely slowed as holdings only increased by 18.9t.

This is not a new phenomenon or one that was last seen only back when gold demand levels were so low. In fact we would be wise to consider the levels of outflows 2011 when the gold price was low and gold numbers were only supported by Chinese buying. Since then ETF demand has recovered.

It might also be worth noting if the lack of interest in ETFs this quarter is a statement about concerns regarding the inherent risk in both the economy and the structure of ETFs.

As both the political and financial systems appear to be inherently weaker than say a year ago investors will be starting to question to safety of their chosen asset allocations.

Given that ETF demand has fallen in contrast to physical gold demand investors may be starting to realise the dangers of holding the financial instruments that do not offer allocated and segregated physical gold bullion.

The level of counterparty risk when investing in ETFs is unprecedented when compared to likes of gold sovereigns and bars. They are also wholly prohibitive and inaccessible should the owner wish to take delivery. For example, when one would like to physically posses the gold underlying the ETF they must first own 100,000 GLD shares. Most investors do not own over $1 million dollars of shares.

At a time when we are questioning who we can trust and the tales we here from bankers and politicians it would not be surprising to me if this is an ongoing trend in the gold space. As more investors are likely to start projecting their concerns from the wider world onto their portfolios they may choose to invest in the real hard stuff of gold bars and coins.

Or was jewellery demand to blame?