Central Banks Boost Gold Reserves: Q3 Sees Record Purchases Amid Geopolitical Tensions

Metals – Central banks' gold purchases increase in third quarter

The latest data from the World Gold Council (WGC) showed that the central banks increased their gold purchases to 337t over the third quarter of the year primarily due to higher buying from China (+78t), Poland (+57t), Turkey (+39t) and India (+9t). Cumulatively, purchases by central banks reached 800t over the first three quarters of the year, a record amount bought for a nine-month total as geopolitical concerns pushed central banks to increase allocation towards safety assets. Meanwhile, gold’s demand from other sectors was soft. Demand for bars and coins fell 14% YoY to 296t while gold ETFs reported net outflows of 139.3t over the third quarter of the year. Global jewellery consumption fell 2% year-on-year to 516.2t in the third quarter.

Global gold demand (excluding OTC) fell 6% YoY to 1,147t in the third quarter of this year, while cumulative demand (excluding OTC and stock flows) also declined 3.2% YoY to 3,285.7t in the first nine months of the year on slowing jewellery demand, lower consumption in the technology sector and mixed performance of investment sector. However, cumulative demand (including OTC and stock flows) rose 4.7% YoY to 3,692.4t in January-September 2023. In terms of supply, the council reported reasonable growth in both mine production (+2% YoY) and recycling (+8% YoY), resulting in a higher gold supply rising by 6% YoY to 1,267t in the third quarter of the year.

Aluminium smelters in China’s southern province of Yunnan are planning to reduce the output again this winter season as the hydropower supply decreases in the dry season, according to the Shanghai Metals Market (SMM). The group further added that the production cuts across four smelters will range from 9% to 40% and are expected to start in the coming days. The total capacity reduction is estimated to be around 1.15mt. Currently, the total operating capacity stands at around 5.65mt as of the end of September. Last year, Yunnan province encountered two rounds of aluminium output cuts due hydropower shortage.

Lastly, the latest LME COTR report released yesterday shows that investors decreased net bullish positions for copper by 2,783 lots for a fourth consecutive week to 30,306 lots in the week ending on 27 October, as the recent recovery in the readily available exchange inventories at LME warehouses eased tight supply concerns. A similar move has been seen in zinc with speculators decreasing the net bullish bets by 1,348 lots for a fourth straight week to 30,538 lots over the last reporting week. In contrast, money managers increased net bullish bets in aluminium by 3,014 lots for a second consecutive week to 107,510 lots over the above-mentioned period.