Global gold demand, excluding over-the-counter trading, fell six percent in the third quarter compared to the same period in 2022, according to the latest World Gold Council data.
This drop was due to central bank purchases slowing down from last year's record levels and jewelry makers consuming less gold.
Gold demand in Q3 reached 1,147.5 metric tons, lower than the 1219.2 recorded in last year's Q3. However, it is higher than Q2 2023 of 993.7 and eight percent above its five-year average.
The WGC expects official sector purchases for the entire year to be similar to 2022 levels, when gold demand shot to an 11-year high, driven by record central bank purchases.
"With geopolitical tensions on the rise and an expectation for continued robust central bank buying, gold demand may surprise to the upside," said Louise Street, senior markets analyst at the WGC.
Central bank demand for gold in Q3 was 337.1 tons, down from a record 458.8 tons a year ago. However, official sector gold purchases for the first nine months of 2023 amounted to 800 tons, surpassing any January-September period in WGC data since 2000.
Buying of gold bars and coins slid 14 percent in Q3 as demands dropped in Europe. Outflows from gold-backed exchange-traded funds (ETFs) continued amid investor sentiment that interest rates would remain high.
In total, including over-the-counter (OTC) trading, global gold demand increased six percent to 1,267.1 metric tons in Q3.
Gold and copper prices slid
Gold prices also dropped as uncertainty surrounded the Federal Reserve meeting and a key Treasury announcement.
As of November 1 at 4:44 a.m. EDT, spot gold price dropped to $1,979 an ounce. It hit $2,009.29 an ounce on Friday, surpassing the critical psychological $2,000 level for the first time since mid-May. Meanwhile, December gold futures fell 0.28 percent to $1,988.50 an ounce.
Markets are now focused on the outcome of the Fed meeting later today. The central bank is widely expected to keep its hawkish stance on rates, given recent signs of high inflation, a strong labor market and overall economic resilience. This is bearish for gold, as higher interest rates increase the opportunity cost of holding bullion.
In light of the recent geopolitical uncertainty, there is a possibility of a near-term price retracement to the $2,000 level, as noted by OCBC Executive Director and FX Strategist Christopher Wong.
However, according to Reuters technical analyst Wang Tao, gold can also fall even further to a trading range of $1,951-$1,964 per ounce after repeatedly failing to surpass a resistance level of $2,010.
"But looking beyond geopolitics, we could potentially be seeing an extended Fed pause - an eventual turn lower in yields should be supportive of gold prices," said Wong.
Apart from gold, Among industrial metals, copper prices fell further on Wednesday following the release of more weak economic data from China. Copper futures dropped by 0.32 percent to $3.6375 per pound.
A private purchasing managers index (PMI) survey revealed an unexpected contraction in China's manufacturing sector in October, mirroring a decline in a government survey released the previous day. This signals additional economic challenges for the world's largest copper importer.
China's manufacturing sector, a crucial driver of copper demand, is encountering fresh challenges due to declining overseas demand as the economies of its major trading partners deteriorate.
Spot silver and platinum prices also fell on Wednesday, with silver dropping 1.5 percent to $22.56 per ounce and platinum slipping 0.9 percent to $925.18. In contrast, palladium price remained steady at $1,116.19.