Gold investment activity slowed in the third quarter. Retail investment, which is the sum of coin and bullion demand, declined 12% quarter-over-quarter, but was up slightly compared to the same period last year.
During the third quarter, weak demand for gold bullion was partially offset by relatively high demand for coin minting. Inflows into exchange-traded products (ETPs) also declined from the previous quarter, with investors adding new short positions on the COMEX.
Gold ETPs increased by 282 tonnes in the third quarter, well below the 441 tonnes recorded in the second quarter. Despite the slower pace of gold inflows in the third quarter, market activity related to gold ETPs remained fairly active by historical standards.
Compared to the same period last year, gold inflows were up nearly 13%. In the third quarter, physical holdings of North American-registered products increased by 10% compared to the second quarter, while physical holdings of European and Asian-registered products increased by 4% and 10%, respectively.
Assets in the SPDR, the world’s largest gold-traded fund, increased by 7% over the same period, rising to nearly 1,269 tonnes. While still on the rise, this is still not enough compared to the 22% increase in the second quarter. According to the weekly report from the US Commodity Futures Trading Commission (CFTC), net speculative positions have fallen by 27% in three months, with investors increasing their short positions by 54%, while long positions have fallen by 15%.
At the retail level, investment in physical bullion declined 20% year-over-year and 32% quarter-over-quarter. Demand for physical gold bullion was estimated at 97 tonnes for the quarter, the lowest quarterly level since the 2008-09 financial crisis. Such a large drop was largely due to profit-taking, with Asian investment demand plummeting 59% in the past three months.
In China, retail investment in gold has fallen by 35 per cent from the same period last year. Despite the decline in physical investment demand, the number of gold ETFs listed in China has increased this year. Three new gold ETFs were added in the second quarter of this year alone, and two more in the third quarter.
In India, retail investment demand for gold fell 26% year-on-year in the third quarter. Demand for paper gold has increased in India due to the neo-crown epidemic, while demand for sovereign gold bonds (SGBs) has increased to the highest quarterly level since the scheme was first introduced in 2015. Retail investors may have opted to buy SGB gold at home due to the rapid rise in gold prices, the restrictions of the new crown epidemic and public concerns over public events.
Physical gold bullion investment in Europe and North America grew 30% and 22% year-on-year, respectively, in contrast to India. The reason for this is that unprecedented levels of fiscal stimulus and low interest rates have supported safe-haven demand in the face of an unusually severe epidemic and economic situation.
Gold coin demand, which is the sum total of official mint, medallion and imitation gold coin demand, grew 44% year-on-year in the third quarter. Official gold coin minting surged 53%, driven by strong demand from North America and Europe. Premiums for gold coins, small bars and gold grains increased, with some U.S. dealers offering 100 percent more than the spot price, even though this has been partially offset by a dismal performance in Africa.
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