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“Although shy of breaking the Q3 2022 record, year-to-date demand has reached 800t, a new record for our data series. This strong buying streak from central banks is expected to stay on course for the remainder of the year, indicating a robust annual total again in 2023,” analysts at the World Gold Council said in their Quarterly Demand Trends report for the third quarter. “While there is a nucleus of committed regular buyers, the range of countries whose central banks have added to their reserves over recent quarters is broad-based.”
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“The strength of buying has, to some degree, exceeded our expectations. While we were confident that central banks would remain net purchasers in 2022, we thought it unlikely that it would match last year’s record buying volume. Should buying continue to be strong in Q4, the full-year total could get closer than we anticipated,” the analysts said in the report. “Our view is based on our survey findings, as well as the broad base of buying, which suggests that increasing gold allocations are becoming an accepted prudential strategy across the segment.”
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While central banks' gold purchases have significantly changed the dynamic in the marketplace, price momentum still needs to see a pickup in investment demand. The WGC noted that physical bar and coin demand remains solid as institutional investors shed their holdings in gold-backed exchange-traded funds (ETFs).
The WGC noted that investment demand continues to be dominated by opaque OTC purchases.
“OTC investment totaled 120t in Q3. This opaque source of demand was again evident as the gold price found firm support for much of Q3, despite ETF outflows and falling COMEX futures net longs,” the analysts said.
The WGC said that investment demand for the third quarter totaled 157 tonnes, up 56% compared to last year; however, demand is down sharply compared to the long-term five-year average of 315 tonnes.
While investment demand is down, the WGC does see the selling momentum starting to ease. The ETF market saw outflows of 139 tonnes, far smaller compared to the 244 tonnes that fled the global ETFs in the second quarter.
Finally, bar and coin demand dropped to 296 tonnes, down 14% from last year; however, the market remained firmly above the five-year average of 267 tonnes.
Looking ahead, analysts at WGC expect that EFT demand will pick up as gold prices start the fourth quarter around $2,000, drawing renewed investor focus.
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