US NYMEX gold prices increased by 3% q-o-q while London LBMA gold prices rose by 5% q-o-q, reflecting improving demand.
According to the World Gold Council, gold supply marginally increased by 1% in 2018, supported by similar growth in mine production and recycled gold output. The increase in global mine production has been driven by output growth in Australia of 4% y-o-y, supported by a multi-year high level of exploration. Meanwhile, in Russia, the output is up by 10% y-o-y backed by state incentives. China’s production has offset these supply increases, with Chinese gold supply falling by 9% y-o-y, as a result of stricter environmental rules. Additionally, closures of loss-making projects and workers strikes through the year have hit South Africa production, down by 18% y-o-y.
On the other hand, demand was heavily stimulated in 2018 by political uncertainty and the negative yields on sovereign bonds. Central banks’ demand has reached multi-decade highs since the suspension of dollar convertibility into gold in 1971, increasing by 74% y-o-y. Central banks’ core objective to invest in safe and liquid assets resulted in diversification of their portfolio in 2018. Several banks have expanded their gold reserves such as Russia, increasing its gold reserves by more than 20%, funded by the sales of US treasury bonds. Other central banks also increased their reserves such as Kazakhstan and Turkey but also European central banks such as Poland and Hungary. After a dip in demand in Q3 in the US due to a healthy domestic economy, demand increased in Q4 supported by concerns over stock market volatility.