Q3 review and outlook

28 October, 2021

A bright start, flat middle, and weak ending sums up a lacklustre quarter for the gold price in Q3

  • The US dollar gold price closed the quarter 1% lower than where it started, apparently shrugging off anaemic sentiment among gold ETF and futures investors
  • Healthy growth in consumer and central bank demand was underpinned by robust over-the-counter (OTC) demand
  • We maintain our outlook for a solid recovery in jewellery demand and growth in annual bar and coin investment to mitigate ETF outflows.

Q3 review

Q3 started well for gold, boosted by dovish US Federal Reserve rhetoric and sharply lower nominal and real 10-year Treasury yields. The latter dropped to an all-time-low of -1.2% by the beginning of August. However, the positive momentum was short-lived and gold failed to capitalise, edging down 0.6% during a tumultuous but ultimately flat August. 

By September, ‘gold-positive’ news resulted in brief gains, but they could not contain a m-o-m decline of 4%. A persistent rise in the US dollar also took its toll. But despite net outflows from gold ETFs and falling net longs in futures markets, gold ended the quarter down only 1.2%. 

This resilience in gold despite visible investment weakness reflects strength not only in consumer and central bank demand but also what’s less apparent on the surface:

  • Y-t-d European and Asian ETF demand has been strong: overall weakness largely stems from the US
  • Record y-t-d bar and coin demand in both Germany and the US and other sources of physical demand have been strong.
  • Over-the-counter (OTC) demand has been resilient in 2021, bucking the trend of loosely tracking COMEX futures market positioning which has steadily declined since the beginning of 2020

Gold price declined only marginally in Q3, despite visible investment weakness

Gold price declined only marginally in Q3, despite visible investment weakness

Gold price in various currencies, indexed to January 2020*

Gold price declined only marginally in Q3, despite visible investment weakness
Gold price in various currencies, indexed to January 2020*
*Data to 15 October 2021 Source: ICE Benchmark Administration, Refinitiv Datastream, World Gold Council

Sources: ICE Benchmark Administration, Refinitiv Datastream, World Gold Council; Disclaimer

*Data to 15 October 2021.


Gold holding up well despite ‘apparent’ underlying investor despondency was one silver lining. Another was the lacklustre performance of both equities and bonds. A general malaise appeared to have taken hold in financial markets during Q3, particularly during September. Seeing bonds and equities fall together ( -4.7% and -0.9% respectively)1  runs counter to the experience investors have grown used to for over two decades. Should that continue with gold picking up steam, it could boost gold’s appeal as a risk hedge going forward.


Strong consumer, central bank and OTC demand faces off weakness in ETFs and solid growth in mine output

We anticipate jewellery demand will exceed 2020 levels and have raised our expectations slightly given current weak price performance. Jewellery will likely continue to benefit from the economic recovery. One risk to our view for the full year (FY) 2021 stems from China, where a fallout from property sector woes and power outages might negatively impact demand in Q4. Having said that, we feel that India’s stronger than anticipated y-t-d demand can offset potential weakness in China. In all, we tighten our FY2021 jewellery demand range estimate to 1,700–1,800t.

Unsurprisingly given its y-t-d performance, we expect investment demand in total to be weaker in 2021 compared to a stellar 2020. Bar and coin demand has impressed but has been offset by materially weaker-than-anticipated net gold ETF demand. Bar and coin demand should continue to be supported by the macro environment of high inflation prints and economic concerns. One surprising area of strength is the US, where the y-t-d total is the highest in our dataset. This was all the more notable given the weakness in both gold ETFs and COMEX futures.

ETF demand is forecast to be weaker than last year, but the extent of the weakness so far was vastly underestimated given a generally supportive macro picture. On balance, it appears the prospect of a higher interest rate environment is more of a concern than ‘transitory’ inflation.

A similar pattern has emerged in the futures markets. A continued drop in COMEX net positioning to a six-month low suggested that OTC demand may have gone the way of ETFs, given their linkages. But our OTC estimate, which is part of the balance of demand and supply, remains not only positive so far in 2021 but is sizeable. 

We believe that the following factors are at play here: 

  • The issues faced by COMEX in 2020 are still reverberating in 2021. Coupled with a steeper contango in 2020, it’s unsurprising that some flows may have escaped futures and found their way into other forms of gold
  • There is anecdotal evidence of inventory rebuilds in 2021 following a year of de-stocking in 2020 from some major consumer markets. This non-investment demand would contribute to our larger OTC estimate
  • ETFs have experienced outflows this year but the vast majority of those are from the US. A regional breakdown reveals that both European and Asian ETF demand has been healthy. This dichotomy is supported by strength in US bar and coin and anecdotally via other sources of retail demand.

Central bank demand has surprised to the upside so far in 2021. Y-t-d buying as of Q3 sits at 393t and, based on historical performance and insights from our survey, we wouldn’t be surprised to see a figure above 450 by year-end.

With diminishing COVID-19 disruptions and a supportive economic environment, mine supply should have fewer impediments to healthy growth in 2021. However, producer margins have continued their downward trend in Q3 since peaking at the end of 2020. A prolonged continuation of this trend could be headwind to continued production growth at these levels.

Recycling is expected to be marginally lower this year, offsetting growth in mine output. Recycling is expected to contract slightly in 2021 (by between 50–150t). With near-market supplies appearing depleted following two years of relatively elevated activity, healthy economic growth to-date, and a muted gold price in 2021, there has been little incentive or capacity to recycle at recent years’ levels. But we remain open to the risk that Q4 could still see economic stress-selling in Asian markets as fallout from China’s property market travails and power shortages lingers.



  1. Source: Bloomberg. Returns for September 2021 for Aggregate US Bonds (LBUSTRUU Index) and MSCI USA gross total return index (GDDUUS Index).

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