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Demand for gold bars by wealthy individuals and corporates kept prices elevated in the second quarter despite a slowdown in central bank buying.

Gold demand rose 7 per cent to 1,255 tonnes in the three months to June on an annualised basis after a surge in bilateral over-the-counter (OTC) investment buying from individuals and companies, according to a quarterly report by the World Gold Council, a lobby group.

Turkish millionaires and companies particularly turned to gold on the OTC market as a store of value, as the lira plummeted to a record low during and after the country’s election in May.

John Reade, chief market strategist at the WGC, estimated that more than a third of the 355 tonnes of OTC demand was attributable to Turkey.

“There has been an accumulation of gold which looks like OTC activity related to high net worth individuals and corporates purchasing,” said Reade. “It’s people trying to protect against currency weakness.”

OTC buying is one of the most opaque parts of the gold market owing to so many private deals between buyers and banks or refineries. However, Metals Focus, which is commissioned by the council to compile the report, makes estimates based on supply and demand data paired with anecdotal evidence.

Line chart of price (troy ounce) showing Gold has continued to shine

Demand from banks and dealers in China and India stocking up on gold also supported the price. But onward sales proved disappointing owing to China’s tepid economic rebound and high bullion prices in India.

Further evidence of OTC demand was supported by the gold price holding firm above $1,900 per troy ounce despite sharp net outflows from exchange traded funds backed by gold in June and a net reduction in long positions in the Comex futures market.

The turn in fortune for gold-linked ETFs brought an end to a three-month streak of net inflows after leading central banks exuded hawkish signs in the face of persistent inflationary pressures.

The gold price has slid from a peak of $2,072 per troy ounce in May, when it came within a whisker of an all-time high, after the prospect of higher interest rates dimmed its allure. Unlike bonds, gold does not provide a yield.

Despite record central bank buying in the first half of 2023, the pace of purchases slowed 35 per cent year-on-year to 103 tonnes in the second quarter, as the Turkish central bank sold gold to satisfy domestic investment demand. Turkey temporarily banned imports of gold in a bid to contain the trade deficit at the time of the election.

While Turkey resumed buying gold in June, Kazakhstan, Uzbekistan and Germany collectively sold 25 tonnes of gold in the second quarter.

The People’s Bank of China, at 103 tonnes, was the largest buyer in the first half of the year, extending its buying streak to eight consecutive months, followed by Singapore and Poland.

Reade said that besides the anomaly of Turkey, there is “no evidence that central bank purchases have slowed”.

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