On Nov. 9, the World Gold Council reported data on gold demand for the third quarter of 2017.
In a nutshell, these were most important data and trends that characterize the gold demand in the third quarter of fiscal 2017.
The demand for the yellow metal decreased 9% year over year as its declined to a volume of 915 tons. This was the lowest level since the third quarter of fiscal 2009.
The World Gold Council also reported a decrease in demand for the first nine months of fiscal 2017. Year to date, gold demand dropped 12%.
The third quarter was characterized by positive inflows into ETFs; however, at 18.9 ton, the ETFs still are far below the level of 144.3 tonnes in inflows that were reported in the third quarter of fiscal 2016.
The World Gold Council reported that "gold remained an important risk-hedge, but the market lacked a catalyst.”
World demand for jewelry fell 3% to 487.7 tons from 495.3 tons due to a 25% year over year drop in demand in India, where it “has been disrupted by the changing tax regime and a tighter regulation around jewellery transactions,” the World Gold Council reported.
India accounted for 24% of the total demand of jewelry, while China – another big consumer of the precious metal – accounted for 33.3% of the total.
Central banks purchased 111 tons gold, which was a 25% increase, with "Russia accounting for the bulk of purchases," the council said.
Investments in bar and coin also increased by 17% year over year to 222.3 tons in the third quarter with China being the most active trader.
Total supply of gold also decreased by 2% to 1,146.4 tons of gold due to a decline in the production at mines and in recycling. The supply side was negatively impacted by China – the biggest producer of the yellow metal since 2007 – where quarterly production from the prior-year quarter declined for the fifth time in a row.
With these statistics, it is best to avoid gold companies that derive most of their revenue from their Chinese assets. The World Gold Council wrote that “recently imposed regulations, which target the discharge of cyanide in tailings … may impact production over several more quarters.”
Instead, investors should go for Newmont Mining Corporation (NEM, Financial), whose Merian mine is driving the boost in the production of gold in Suriname, for Pretium Resources Inc. (PVG) and TMAC Resources Inc. (TMR.TO).
Pretium Resources’ Brucejack mine and TMAC Resources’ Hope Bay mine are driving the increase in the Canadian production.
Between the best buying opportunities for the coming weeks, one can't exclude Goldcorp Inc. (GG, Financial) and Barrick Gold Corporation (ABX, Financial). These two Canadian gold producers are driving an increase in their production of gold in Argentina. Goldcorp has 100% ownership of Cerro Negro mine, and Veladero mine that Barrick Gold Corp. operates with Shandong Gold Group under a 50-50 joint venture agreement.
Polyus Gold International Ltd. (LON:POLG) also represents an interesting bet. The U.K.-based gold producing company, whose main assets are located in Russia, holds the Russian Natalka project that is started in September. At Natalka, Polyus expects to reach full gold production before 2018 ends.
In addition, keep an eye on New Gold (NGD), whose Rainy River project will begin production of saleable gold sometime this month. Also, assess Endeavour Mining Corporation (EDV.TO), whose Houndé mine in Burkina Faso poured the first gold last month and where the commercial production of the yellow metal was announced on Nov. 1. The Houndé mine is a low-cost asset and Endeavour Mining Corp.’s flagship.
Disclosure: I have no positions in any securities mentioned in this article.
