JOHANNESBURG (miningweekly.com) – Owing to an increase in net official sector buying and a stellar level of retail purchases of bars and coins, physical gold demand rose by 7% year-on-year in the third quarter, the Thomson Reuters GFMS Gold Survey: Q3 2015 Review and Outlook revealed on Tuesday.

India regained its top position as the largest overall consumer of gold this year, with its consumption amounting to 642 t in the first nine months.  

Jewellery consumption in the country increased by 5% year-on-year to an estimated 193 t in the third quarter, the highest quarterly consumption since the first quarter of 2011 and the highest third-quarter demand since 2008.

Retail investment rose 30% year-on-year to 55 t, the highest since the fourth quarter in 2013, while gross official imports to India were 263 t – 23% higher year-on-year and the highest quarterly volume year-to-date.

After a lacklustre second quarter, which was the lowest second quarter recorded since 2011, China’s gold demand rebounded to 196 t in the third quarter – a modest 3% year-on-year improvement.

“Now that the extraordinary performance of the domestic stock market has come to an end and many investors have lost faith in the equity market, gold has regained its attractiveness as an alternative investment vehicle.

“Demand for gold, both in the form of jewellery and investment bars, picked up immediately after the gold price breached $1 100/oz in mid-July, also helped by an uptick in seasonal demand led by Chinese Valentine’s Day in August and the Autumn festival in September,” the report noted.

However, Thomson Reuters GFMS warned that gold would remain under pressure as US Federal Reserve Bank uncertainty continued to weigh on sentiment.

“Among other bearish factors are low inflation expectations and generally weak investor sentiment towards precious metals. That said, gold may draw some support from a seasonal uptick in physical demand towards year-end, and the prospects look brighter for the next year,” the report stated.
 
Gold supply was up less than 1% year-on-year, owing to global mine production remaining broadly flat, with production provisionally estimated at 851 t.

Dehedging was estimated to have prevailed, with ongoing deliveries into hedges likely to have exceeded fresh hedging activity.

Supply from scrap continued to recover for the second quarter in a row, rising by 3%, mainly owing to gains of 48% and 154% in India and Turkey, respectively. Excluding these countries, total scrap in the rest of the world declined by 5% year-on-year.

With only a marginal growth in total supply, the 7% increase in physical demand led to a smaller surplus in the market of 51 t for the third quarter.