While gold prices may consolidate or be caught up in a broader sell-off in the short term, it is set to benefit from the growing risks of a second COVID-19 outbreak and the global economic turmoil.
Gold recorded a spectacular performance during the third quarter, soaring to an all-time high of US$2,067/oz in early August.
This was driven by escalating fears over the global economic downturn due to the COVID-19 pandemic and massive stimulus measures introduced by global central banks in an attempt to lessen the impact.
Gold averaged US$1,909/oz in the third quarter, up by 27% from the previous three months and 30% above the level seen over the same period of last year, said Refinitiv.
Fresh record before year-end
However, the yellow metal may hit a fresh record before the year-end, said Refinitiv. Gold price is forecast to average US$1,784/oz in 2020.
The underlying macroeconomic conditions such as the economic headwinds, low-interest rate environment, ongoing US-China tensions, rising inflationary expectations and the looming second wave of COVID-19, remain highly favourable for gold in the medium-to-long term.
Refinitiv’s precious metals research manager, Cameron Alexander said: “It is in the near term that we are likely to see increased volatility, choppy trading and fluctuations in the stock markets and the gold price, particularly in the run-up to U.S. presidential elections.”
COVID-19 toll on gold demand in third quarter
In the third quarter of 2020, gold demand remained under pressure, with losses across nearly all sectors.
“Coupling Covid-19’s severe toll on the global economy and a record high gold price, consumption was dragged sharply lower,” added Alexander.
Rate of decline in demand less pronounced
Gold physical demand recorded another poor performance in the third quarter, down 30% year-on-year to an estimated 562 tonnes.
Jewellery fabrication remained the worst affected segment, with global offtake contracting by 23% to 314 tonnes.
Demand remained poor across all the key regions despite many markets re-emerging from severe lockdown restrictions prevalent for most of the second quarter.
Jewellery offtake in the world’s two largest gold consuming markets - China and India – fell 7% and 21%, respectively, battered by weak economic conditions, along with a record high gold price.
Alexander noted: “It is worth adding, however, that the rate of decline was less pronounced than the one seen in the previous two quarters as economies started to re-open after the lockdown.”
Official coin fabrication surge
Demand for gold in industrial applications recorded a 9% year-on-year drop in the three months to September, with double-digit percentage declines in dental and other industrial & decorative offtake.
However, electronics industry demand seems to have rebounded from the previous quarter, particularly from the automobile industry as manufacturing resumed, but it remained some 9% down year-on-year.
Retail investment - the sum of physical bars and all coins – saw demand rise marginally year-on-year, led by a strong rebound in official coin fabrication, which was largely offset by poor physical bar investment.
Official coin fabrication surged by 53% to nearly 72 tonnes as fears around the COVID-19 crisis and the global market turmoil, along with the improved gold outlook saw resurging interest from retail investors, driving premiums to unprecedented levels.
Demand for gold bars, however, fell by 20% to just under 97 tonnes, the lowest quarterly level since the financial crisis of 2008/09, largely attributed to poor performance in Asia, where investment demand plunged by 59% over the three-month period.
Central Bank turn net sellers
Central banks became net sellers for the first time in nearly a decade, with net sales estimated at just under 13 tonnes in the third quarter.
The shift was driven by an absence of purchases from Russia and China, as well as a significant rise in gross sales as countries continued the battle against COVID-19, with perhaps some also taking advantage of the gold’s astonishing price performance in recent months.
Gold ETPs saw another quarter of strong demand, estimated at over 280 tonnes, with total inflows over the nine-month period estimated at over 1,000 tonnes, up 60% from the record annual gain seen in 2009.
Mine production hit by COVID-19 restrictions
On the supply side, mine production slipped by 2% to an estimated 862 tonnes.
While the rate of decline was a lot less pronounced than in the previous quarter, many mines continued to operate at restricted capacity in line with COVID-19 safety restrictions.
Global scrap supply rebounded by 29%, with scrap flows rising in all the key regions, as many businesses returned to normal operating capacities, and boosted by record-high gold prices.
With total supply rising by 10%, and demand remaining subdued, the gold market registered an even bigger physical surplus in the third quarter.
Perseus Mining unfazed as gold production up
Perseus Mining Limited’s (ASX:PRU) (TSE:PRU) (OTCMKTS:PMNXF) Edikan and Sissingué operations in West Africa continued to perform strongly in the September 2020 quarter relative to the prior quarter, with gold production up 6% to 68,772 ounces.
Edikan and Sissingué are forecast to continue to produce strongly in the December 2020 quarter, and Yaouré is now expected to contribute to the Perseus group’s production performance in this period for the first time.
Perseus Mining sees gold production increasing to more than 500,000 ounces per year in 2021/2022.
Bellevue continues with new gold finds
Bellevue Gold Ltd (ASX:BGL) (OTCMKTS:BELGF) has discovered a new shallow high-grade gold shoot at its namesake project in Western Australia with results up to 1.9 metres at 58.0 g/t gold from 380.5 metres.
Drilling at the new high-grade Armand lode returned a host of high-grade results over a 450-metre strike that remains open to the north, down dip and down plunge.
The drilling program is ongoing to incorporate the new high-grade shoot into the next resource update planned for the current quarter.
Bellevue has also hit gold in the first Western Australian Government-funded Exploration Incentive Scheme hole drilled to the east of the high-grade Deacon lode, highlighting the potential for repeat structures.
Alkane boosts production at Tomingley
Alkane Resources Limited (ASX:ALK) (OTCMKTS:ALKEF) is focused on growing its gold bounty through increasing production at Tomingley Gold Operations, pursuing organic growth through targeted exploration and development, and strategic investment.
The reliable, existing production from Tomingley met the 2020 financial year guidance with 33,507 ounces of gold produced, with 2021 guidance estimated at 45-50,000 ounces at an AISC of A$1,450 to A$1,600 per ounce.
The focus is now on production growth through the Tomingley Corridor via exploration at the San Antonio, Roswell ad El Paso targets and further exploration at the recent Boda discovery.