Private investors supported global demand for gold

In the second quarter, the supply on the world gold market increased noticeably. At the same time, there was a decrease in demand from the jewelry industry and industry. Demand for the metal also fell from the side of central banks, primarily due to massive sales by the Central Bank of Turkey. However, against the backdrop of high inflation, demand for gold was maintained by private investors, primarily for bars and coins.

According to the World Gold Council, the supply of gold on the world market in the second quarter of 2023 exceeded 1,255 tons. This is 6.7% higher than a year ago and the highest result since the third quarter of 2020. The growth was primarily due to metal recycling, which grew by almost 13% to 322.3 tons. Gold mining increased by 3.8% to 923.4 tons.

The increase in production is mainly due to consistently high gold prices, which make mining at hard-to-recover deposits attractive, said Daniil Bolotskikh, an analyst at Tsifra Broker. According to Investing, over the past three years, gold prices on the world market have generally remained in the range of $1.8-1.9 thousand per troy ounce, which is significantly higher than the previous five-year period. At the same time, in 2023, at the beginning of the second quarter, the cost of the precious metal rose above the level of $2 thousand per ounce, although at the end of the quarter it fell back to $1.92 thousand per ounce.

However, high metal prices affected the structure of demand. For the quarter as a whole, global consumption of physical metal barely reached 920 tons, the lowest since early 2021.

This is 2.5% less than the same period in 2022 and almost 20% lower than the first quarter of this year. The jewelry industry kept metal consumption at the level of the previous year (491 tons). However, industrial demand fell by 10% over the year to 70 tons. “Industrial demand was declining due to weak end-user demand for consumer electronics (smartphones, PCs, laptops). Gartner predicts a recovery in demand for electronics by the end of the year and in 2024,” says Daniil Bolotskikh.

Decreased demand for gold and from the central banks. Over the past quarter, they bought only 103 tons, which is 35% lower than the same period last year and almost three times less than in the first quarter. This was largely due to the actions of the Central Bank of Turkey, which from the largest buyer (see “Kommersant” dated February 1) turned into a seller, selling 132 tons (including to support the weakening national currency). They reduced investments in metals and exchange-traded ETFs, net sales of which amounted to 21.3 tons. “Gold is not profitable and is now under pressure from high real interest rates in the US,” said Alexei Mikheev, investment strategist at VTB My Investments.

On the other hand, individuals showed an active interest in gold. During the reporting period, the volume of world demand for bars and coins amounted to 277.5 tons, which is 6% higher than the value of the previous year.

Turkey (47.6 tons), China (51.1 tons), Egypt (10.4 tons) were among the leaders. Russian private investors also joined the general trend, increasing investments by 1 ton, up to 8.5 tons, the maximum for the entire time of observations.

According to the chief analyst of Sovcombank Mikhail Vasiliev, the high demand of Russians for investment gold is associated not only with the positive dynamics of prices on the world market, but also with the weakening of the ruble. According to the results of the first half of the year, the exchange price of the precious metal increased by 34%, exceeding 5.4 thousand rubles per year. In early August, prices approached 5.8 thousand rubles per year, having updated the maximum since March 28 last year. “Since every year there is more and more money in the world, gold can be tried as a protective tool against inflation,” explains Alexander Potavin, an analyst at FG Finam.

With regard to the further dynamics of world prices for gold, analysts speak with caution. Alexei Mikheev admits that by the end of the year the price of gold may fall below $1.8 thousand per ounce. “A recession, in anticipation of which the markets have been pawning a US rate cut and buying gold as a defensive asset, is unlikely to happen in the coming quarters,” he notes.

Mikhail Vasiliev believes that in the coming months the price of gold will remain in the range of $1.9-2.1 thousand per ounce. One of the key values ​​for the market will be the policy of the Fed. The completion of the tightening cycle of the US regulator’s monetary policy, the expert explains, may weaken the dollar’s position on the world market and lead to a decrease in US government bond yields, which is positive for the precious metal.

Vitaly Gaidaev