Gold demand dropped to an eight-year low in the third quarter as flows into exchange-traded funds (ETFs) weakened and jewellery demand in India dragged.
Demand for the yellow metal fell by nine per cent year-on-year to 915 tonnes, according to data published today by the World Gold Council (WGC).
ETFs inflows added 144 tonnes of demand in the third quarter of 2016, but only 19 tonnes during the three months to the end of September. Investors buy ETFs on exchanges to gain exposure to an asset class.
Demand from the massive Indian market weakened as the nation introduced a goods and services tax across the nation and started new know-your-customer requirements to curb money laundering, the WGC said.
The Chinese market provided a “bright spot” for the gold industry, as retail investment rose for the fourth quarter.
US demand was “relatively weak” in the face of a “soaring stock market and a disappointingly range-bound gold price”, according to Alistair Hewitt, head of market intelligence at the WGC, a marketing body whose purpose is to sustain demand for gold.
American investors have also been incentivised to move money out of gold into fixed income as the Federal Reserve has raised interest rates.
In a separate report also published today Yianos Kontopoulos, UBS’s global head of macro strategy, wrote that while there is “upside risk” to the gold price, they take a neutral stance on its prospects.
The report said: “Gold should continue to be a valid asset for those who are looking to hold diversified portfolios. But a relatively stable macro environment limits the urgency to build those positions.
“At the same time, we don't think there is enough froth in the market to trigger a sell-off.”
However, global demand may be starting to come back after being “in the doldrums”, according to Hewitt.
He pointed to a potential structural change in the demand for gold in industrial uses, with more smartphones, LEDs, and smart devices.
Meanwhile the spectre of geopolitical risks continues to loom over the market, with the situation in North Korea which saw gold prices spike to $1,362.40 per troy ounce at the start of September still unresolved.
“For a lot of investors, they are aware you do have geopolitical risks and they can come quite quickly,” said Hewitt.