Gold Demand Trends Q2 2023

Gold investment in Q2 was healthy compared with the same quarter last year, up 20% to 256t. The 6% growth in Q2 bar and coin demand was driven by very sizable jumps in a handful of markets – notably Turkey and the Middle East – and was mostly due to market-specific factors. This was offset by Europe, which exerted a strong drag on the global total.

Global gold ETFs saw two consecutive months of net inflows before flipping negative in June, ending in net outflows of 21t for the quarter. This compares positively with Q2’22, which saw outflows of 47t. But the H1 comparison is less flattering: 50t of net outflows compared with 223t of net inflows in H1’22, when Russia’s invasion of Ukraine sparked huge interest in gold.

The ‘OTC and other’ element of investment was a substantial 335t in Q2. Various factors contributed to this number, including high net worth purchases of physical bullion products in several markets – notably Turkey – as well as stock build-up in key markets such as China and India. The growth in this category of demand appears to contradict the trend in net long positioning in the futures market, which subsided by around 150t during the quarter, down to around 477t by the end of June. Nonetheless, the fact that the gold price held up well and established a firm foothold above US$1,900/oz during the quarter corroborates these harder-to-measure OTC demand flows. 

ETFs

Gold ETFs ended their three-month positive streak with June’s sharp reversal. Contributing factors were strong performance from key equity markets, combined with a drop in the gold price in reaction to hawkish signs from major central banks.

Europe was something of a regional outlier, being the only region to see net negative Q2 outflows (-29t). European-listed funds saw consistent outflows throughout the quarter, albeit that these were trivial during April and May. European investors appeared to be more consistently focused on continued rate hikes as stubbornly high inflation in the region kept attention on the ECB’s tightening path.¹

Decent inflows into North American funds in April and May meant the region ended the quarter slightly positive (+9t), despite almost 27t of outflows in June. The after-effects of the banking crisis supported demand early in the quarter, as did the tense US debt ceiling negotiations. The gold price also attracted momentum investment, before the price pull back at the end of May triggered outflows; these continued throughout June as expectations for US interest rates shifted higher.  

Funds listed in Asia were little changed in Q2, registering a marginal 1t increase in holdings. This growth was driven purely by Japan, where inflows mirrored healthy bar and coin investment. China witnessed inflows in June, buoyed by currency depreciation and continued concern over the domestic economy.

In other markets, funds listed in Turkey and Australia experienced investment shifts similar to those in the bar and coin space. Consistent Turkish inflows through to the end of May gave way to outflows in June as the conclusion of the presidential elections caused political uncertainties to subside, while a return to more conventional monetary policy caused a jump in local interest rates. Australian funds saw fairly consistent outflows through much of the quarter, possibly in response to the price peaking before correcting lower. 

For a more detailed review of regional H1 activity in global gold-backed ETFs, see ‘Gold ETF Flows: June 2023’.

Bar and coin

Bar and coin investment in Q2 increased by a healthy 6% y/y in Q2, although was down 9% from the prior quarter. In the wake of the April and May gold price peaks, the ensuing correction and broadly rangebound action during the latter half of the quarter gave investors in many markets reason to pause and wait for clearer direction.

China

Bar and coin investors in China bought 49t of gold in Q2, 32% higher y/y. The positive comparison is largely due to weak Q2’22, when COVID restrictions prevented the purchase of physical bars and coins.

Conversely, the q/q comparison shows a 25% decline from Q1, given differing price dynamics during that quarter, when marked local price gains attracted significant investor attention. However, this momentum slowed in Q2 and local prices traded broadly sideways, encouraging many investors to wait on the sidelines for a clear trend to re-emerge. A slowing domestic economy further dampened demand in the quarter.

H1 saw 115t of gold bar and coin demand, 33% higher y/y. Aside from the low-base effect, H1 investment was underpinned by the PBoC’s continued gold purchases and geopolitical concerns, as well as RMB weakness, which further supported investment demand through its impact in pushing up the local gold price. Furthermore, as we have previously highlighted, local households’ tendency to save is at near-record levels, prompting many investors to turn to gold bars and coins for value preservation.

From a longer-term perspective, bar and coin sales were 15% lower than their 10-year average, and 20% below 2021 levels (a more ‘normal’ year for comparison purposes as it was unaffected by local COVID lockdowns). Overall, we believe the record level gold price and the weakening economic recovery were main contributors to this weakness.

The outlook for Chinese bar and coin demand looks positive for the remainder of the year, aided by 2022’s low base. Seasonal factors should prove supportive and investors may follow the lead set by global central banks, which continue to accumulate gold. Risk-off sentiment given the uncertain economic recovery – and potential weakness in RMB assets – should also prove positive for gold, although local gold price moves will remain a key factor in H2 and continued price stability would likely result in lacklustre investor interest.

India

Indian bar and coin demand was little changed in Q2, down 3% y/y to just under 30t. The H1 comparison was a little weaker at -11%, thanks to the relatively muted first quarter. Compared with longer-term norms, demand was notably weaker – 10% below its five-year quarterly average of 40t.

The local price correction during the quarter encouraged some investors to buy at lower levels in anticipation of a price rebound. Akshaya Tritiya was also positive for festival investment purchases, more so than for jewellery.

Middle East and Turkey

Another fivefold y/y increase in quarterly bar and coin demand in Turkey took the H1 total to 98t – a record for our series. Q2 demand jumped to 48t, compared with a five-year average of just 20t.

Local dynamics in Turkey have proven exceptionally positive for gold demand in recent quarters. Runaway inflation, loose monetary policy, the weakest lira on record and a hotly contested presidential election proved a potent combination, even in the face of a dizzying rise in the local gold price to record highs. A lack of viable investment alternatives has also worked in gold’s favour. The increase is reflected in the significant jump in the ‘medals and imitation coin’ category of retail investment as private mints and refineries responded to the surge in demand. 

Gold investment also attracted the attention of larger-scale investors, with high net worth (HNW) interest reported in larger-format bars – a more opaque element of demand that is captured in our OTC series. 

Thanks to a temporary partial ban on gold imports during the quarter (aimed at containing the trade deficit), much of Q2’s local demand was met through sales by the Central Bank of Turkey, which reported significant declines in its official gold holdings in April and May. Import quotas were reinstated following the elections as investment demand slowed and tightness in the market eased. 

Bar and coin investment in the Middle East reached a 10-year high of 32t. Growth was universal across the region, but by far the largest contributions were from Egypt and Iran.  

Q2 investment demand in Egypt more than trebled y/y to exceed 10t, eclipsing previous quarterly records. H1 total investment demand of 19t is already close to 2022’s annual total. The steep y/y rise in inflation, combined with successive controlled devaluations of the local currency have shone a spotlight on gold’s properties as a safe haven. 

A relaxation of restrictions on hand-carried gold has eased supply conditions in the local market and this is reflected in lower premiums on gold investment products. Demand remains robust in the face of a challenging economic backdrop and potential further currency depreciation. 

Iranian bar and coin demand perked during the quarter up as the local currency gained against the dollar and the domestic gold price dipped. Investment was up 66% compared with Q2’22, at 12t. Inflation remains high and continues to underpin gold’s safe-haven appeal.

Turkey and Iran replace Germany and Switzerland in the top 5 bar and coin markets in H1’23*

The West

US and European bar and coin demand diverged again in Q2: US investment gathered pace while European demand continued to slide. 

US investors continued to show a very strong appetite for gold bars and coins in Q2, with demand rising to a 13-year high of 32.2t. This took H1 demand to 65t – the strongest half-yearly total since 2008 and the highest for a first half in our entire data series. 

The collapse of SVB and Signature Bank late in Q1 created shockwaves that carried into Q2, with investors scrambling to buy physical bullion products. US Mint coin sales reflect this upsurge in demand, with sales of Eagles and Buffaloes almost reaching 1 million ounces by end-June. This compares with annual sales of 1.4m ounces over the full year 2022. 

However, demand tailed off notably in June as the stock market pushed higher, banking contagion seemed to be contained – for now at least – and interest rates continued to grind upwards. Importantly though, two-way activity remained very limited; testament that individual investors as yet have very little appetite to liquidate their holdings. That could change if the gold price remains high and relatively stable, particularly if economic conditions in the US start to deteriorate and distress-selling becomes a necessity. 

But the sense is that investment interest remains piqued and demand will likely pick up again should any signs of banking instability re-emerge, and on approach to the 2024 presidential election campaigns. 

In Europe, bar and coin demand extended its sharp Q1 drop, with a 62% y/y decline. Investment demand totalled just 30t during the quarter, only around half the five-year quarterly average for the region (58t). H1 demand slid to its lowest since before the Global Financial Crisis, at 68t.

Losses were widespread across the region, although Germany was particularly weak: demand plummeted 78% y/y to a 15-year low of 11t. The decline was due to a combination of limited buying and higher levels of selling back. 

Investment continued to suffer from the return to positive interest rates, giving savers an incentive to hold cash in bank accounts. Investors were also discouraged from making fresh purchases at such high euro gold prices – a factor that promoted increased profit-taking. Investors also seemed more sanguine about geopolitical factors, with the US banking crisis apparently being contained and the Credit Suisse collapse viewed as a company-specific issue. 

Other German-speaking markets contributed to the regional slump: Switzerland and Austria both saw sharp double-digit declines.

ASEAN markets

The ASEAN markets covered in GDT saw universal y/y declines in Q2. Bar and coin demand in Vietnam was 5% lower y/y at 9t. Investment was again hampered by liquidity restrictions as investors who hold equities and real estate suffer from their poor performance. Those who do buy gold continue to favour chi rings (simple gold rings, which are used for investment purposes) as premiums on SJC tael bars remain offputtingly high.

Investment in Thailand was 10% lower y/y at 6t. Investors held back from buying at such high price levels in the hope that the price would dip and offer an opportunity to add to holdings at lower levels.

Many Indonesian investors were similarly patient, waiting for a deeper price correction before returning to the market. Bar and coin demand was 10% lower at less than 4t. 

Rest of Asia

Japan saw a remarkable Q2 as bar and coin demand moved to positive net investment despite the local gold price reaching new all-time highs. Gross selling from existing holders continued, but the trend identified in Q1 of younger investors entering the market apparently accelerated. Wealth preservation, in an environment of persistent yen depreciation, seems to be the main driver of these purchases and much of the flow is into gold accumulation plans.

Retail investment in South Korea weakened notably in Q2, subsiding to its lowest level since Q3’16. Conservative investor sentiment translated into a general reluctance to build positions on the pullback in the price from the record high of early May. 

Australia

Bar and coin investment lost momentum in Australia in Q2: at 3t it was sharply lower both y/y and q/q. The slowdown is attributed partly to the high gold price and partly to the intensifying cost of living crisis, both of which are reflected in a pick-up in two-way activity. Nonetheless, anecdotal reports suggest the appetite for gold remains intact.