Outlook
30 October, 2024
Key factors guiding our outlook for Q4 and the full year (FY) are:
- Gold prices continue to climb as participation from investors broadens amid increasing media attention on the stellar y-t-d returns
- Geopolitical uncertainty, stemming from both an escalation in Middle East tensions and the highly polarised US presidential election, is supporting increased investment interest and lower-than-predicted recycling
- The shift that is underway in global interest rate policy should promote further interest in gold investment as the opportunity cost of owning gold drops.
Investment
Bar and coin was weaker than we had anticipated for Q3 but the y-t-d total remains solid at 859t vs the 10-year average of 774t. Geopolitical risk, concerns of economic slowdown and the gold price surge are fuelling these strong numbers even as record prices might keep some buyers at bay.
We expect more of the same in Q4, but the potential for volatility post the US election means a broader set of outcomes for the FY must be considered compared to a traditional year-end close with one quarter remaining.
Western-listed gold ETFs have finally started to stir, leading to the first quarter of global inflows since Q1 2022. As for the rest of the investment outlook, US politics will likely stir up volatility in Q4, making it just as tough to predict gold ETF outcomes as it is to call the election. That said, should the Federal Reserve deliver on its projected rate path, then all else being equal, we would expect interest in ETFs to continue with the added catalysts of elevated fiscal deficits and richly valued equity markets.
Speculative futures exposure via managed money net long positions look extended. However, overly bullish positions have historically been a weaker contrarian signal for prices than overly bearish ones.
Mine supply
Broad-based increases in production in Q3 move us closer to a new annual record. Although all-in sustaining costs (AISC) have increased, softer energy prices and a soaring gold price have helped maintain very healthy margins. It may therefore be expected that this will translate into further gains in Q4, slightly bumping up the FY outlook.
Recycling has been slow to respond to high prices, and reports of a depletion of near-market stocks in both China and Western markets should put a lid on a ramp up in recycled supply in Q4. We see more downside than upside risk to recycling and have revised down our full-year forecast.
Central banks
The slowing of Q3 demand can likely be attributed to the sharp rise in prices prompting a pause in buying by some central banks combined with limited tactical selling by others. However, evidence suggests that the higher price has not dented a longer-term desire to increase allocations. We expect buying for the full year to remain strong but below the last two years, and leave our FY expectations virtually unchanged from last quarter’s estimate.
Fabrication demand
Jewellery has been quite resilient on a value basis this year but high prices have taken their toll on tonnage, producing one of the weakest y-t-d totals in our quarterly dataset back to 2000. Jewellery buyers will require one of two things to pick up the pace of their buying: a stabilising price or a meaningfully brighter economic outlook. That said, our prior forecast was quite pessimistic and Q3 was meaningfully stronger in India, which leads us to slightly revise up our FY forecast.
Technology demand was slightly better than we had anticipated in Q3, supported by the continued AI boom. But demand in the sector faces some risks and we retain the full-year forecast from last quarter.
