Global Q2 gold demand drops 2% but jewellery demand remains resilient despite high prices

New Delhi: Global gold demand, excluding over-the-counter transactions (OTC) dropped 2 per cent to 921 tonne during June quarter of 2023, driven by a marked deceleration in net central bank buying compared to above-average purchases in the year-ago period, according to the World Gold Council (WGC).

Inclusive of OTC and stock flows, total global demand strengthened 7 per cent to 1,255 tonne during Q2, pointing to a solid gold market globally, it said in a report released on Tuesday.

According to WGC, the second quarter central bank demand was down to 103 tonne year-on-year (YoY) primarily driven by net sales in Turkey due to country-specific political and economic circumstances.

However, central banks bought a first-half record amount of 387 tonne, and quarterly demand is in line with the longer-term positive trend -- indicating that official sector buying should remain strong throughout the year, it said.

“Record central bank demand has dominated the gold market over the last year and, despite a slower pace in Q2, this trend underscores gold's importance as a safe haven asset amid ongoing geopolitical tensions and challenging economic conditions around the world," WGC senior markets analyst Louise Street said in a statement.

In case of gold investment, bar and coin demand increased by 6 per cent to 277 tonne in Q2 over the year-ago period, and a total of 582 tonne in H1(January-June) , thanks to growth in key markets including the US and Turkey.

Gold exchange-traded fund (ETF) outflows of 21 tonne in Q2 were notably smaller than the 47 tonne in the same quarter of 2022, bringing net outflows to 50 tonne in the first half of the year.

However,  jewellery consumption remained resilient in the face of high prices, showing a 3 per cent YoY increase in Q2 and an H1 total of 951 tonne.

"A rebound in Chinese demand and remarkably strong consumer buying in Turkey bolstered second-quarter consumption," the WGC report said.

Demand for gold used in technology remained very soft thanks to continued weakness in consumer electronics; it held at just 70 tonne for a second consecutive quarter.

Finally, total gold supply was 7 per cent higher YoY at 1,255 tonne in Q2 of this year, with mine production estimated to have reached a record for H1 of 1,781 tonne.

In the second half of 2023, Louise Street said an economic contraction could bring additional upside for gold, further reinforcing its safe-haven asset status.

"In this scenario, gold would be supported by demand from investors and central banks, helping to offset any weakness in jewellery and technology demand triggered by a squeeze on consumer spending," he added.