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Worldwide gold demand experienced a drop of  9 percent in the third quarter of 2017 compared with the same period in 2016, said the World Gold Council’s latest gold demand trends report.

According to the council, a softer quarter in the jewelry sector and a substantially lower inflows into exchange-traded funds (ETFs) led this decline in gold demand.

Global jewelry demand dropped 3 percent year-on-year in the third quarter, amid the introduction of Goods & Service Tax. In addition, the stricter anti-money laundering regulations around transactions in India discouraged even more buyers.

ETFs had another quarter rich with positive inflows, but these fell short of the notable 144t influx into the sector during the third quarter of 2016.

By contrast, central bank demand stood healthy in the third quarter, rising 25 percent year-on-year to 111t, while investments in bar and coin grew 17 percent stronger to 222t even if it came from a low base.

A Sharp Drop in India

Although it exhibited a robust growth in the first half, jewelry demand deteriorated in India during the third quarter due to regulatory intervention.

Following three consecutive quarters of growth, demand plummeted 25 percent year-on-year to 114t.

The council cited the introduction of the 3 percent Goods & Service Tax in the beginning of July as a contributing factor. According to them, a large swathe of Indian consumers had pre-empted the introduction of GST by bringing forward their gold purchases to the second quarter.

This has left demand slightly flat in the beginning of July.

Meanwhile, the jewelry trade struggled much with the new tax system. According to the council, large, organized retailers, which have sophisticated accounting and inventory-management system, were able to cope with the GST transition.

However, smaller, unorganized retailers faced difficulties.

“It was a tough quarter for gold demand. India was coming to terms with GST and anti-money laundering regulations and, although we saw EFT inflows at 19t, they were significantly lower than last year,” said Alistair Hewitt, Head of Market Intelligence at the World Gold Council.

“But there were some real bright spots: retail investment demand in China grew for the fourth consecutive quarter; the Turkish and Russian central banks added to gold reserves; and, after years of declines, we also saw increased use of gold in technology, supported by demand for high-end smartphones,” added Hewitt.

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Total Supply Fell

In a separate report, the council stated that mine production in the third quarter fell over 1 percent year-on-year to 841t. They added that production varied among major producers.

The council said that the Chinese gold mind production, which has been the largest producer since 2007, registered its fifth year-on-year decline in the third quarter.

Recently imposed regulations have targeted the discharge of cyanide in the tailings. The council said that these may continue to bite and may impact production for several more quarters.

Meanwhile, the ongoing dispute between Acacia Mining and the government of Tanzania has disrupted production in that country, resulting in a total of 15 percent fall year-on-year in the third quarter. Output of Acacia mining dropped 7 percent year-on-year.

Recycled Gold

Recycled gold supply in the third quarter hit 315t, which was nearly 6 percent lower than in the third quarter of 2016.

Recycling continues to normalize after the spike in 2016, with third quarter demand almost directly in line with the five-year quarterly average of 314.8t, according to the council.

In Europe, the depletion of near-market supplies continued to put a cap on the recycling level. The  5 percent quarter-on-quarter decline in the quarterly-average gold price in the third quarter did not help.

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