Market Performance Gold Report - Q3 2020 - Funds People

Page created by Todd Barrett
 
CONTINUE READING
Market Performance Gold Report - Q3 2020 - Funds People
Market
Performance
Gold Report
Q3 2020

This report is for professional investors/qualified investors/qualified
clients. Please do not redistribute.
Market Performance Gold Report - Q3 2020 - Funds People
This is the first of our four-part series on gold.
                                                              In this part of our Q3 Gold Report, we look
                                                              at the performance of the gold price, in both
                                                              nominal and real terms, and compared to
                                                              other assets including major currencies.

                                                              Please keep an eye out for future reports in
                                                              this series. We will be reviewing some of the key
                                                              macro factors that impacted the gold price in
                                                              the third quarter. We will also be looking back at
                                                              previous US elections and drawing conclusions
                                                              that may be relevant for today’s gold investors.

               The gold price maintained its strength in the third quarter
               and, while some of the metal’s shine may have faded in the
               second half of the period, gold still produced a strong return.

Introduction   A highlight of Q3 was gold hitting an all-time high
               of over $2,000 an ounce. *

               Data: Bloomberg, $2,064 gold price recorded on 6 August 2020.
Market Performance Gold Report - Q3 2020 - Funds People
Market Performance

Quarterly price performance

                             Gold
                                                                                                                   Gold set a new all-time high in Q3 at
                            2100
                                                                                                                   $2,064 an ounce
                            2050

                            2000
  USD per Fine Troy ounce

                            1950

                            1900

                            1850

                            1800

                            1750

                              Jun 2020             Jul 2020                                  Aug 2020   Sep 2020

Data: Bloomberg, gold price in USD, for period 30 June to 30 September 2020

While the gold price registered a relatively impressive 5.9% gain over the third quarter to finish
at $1,886 an ounce, the path from beginning to end was certainly not a smooth one. Soon
after breaking through the $1,800 barrier, it didn’t take long for gold to hit an all-time high
of $2,064 on 6 August. In fact, the gold market had hardly paused for breath when the price
shot through the previous record of $1,900 (reach on 5 September 2011). This meant that
in the first six weeks of Q3, the gold price appreciated by 15.9% from the previous quarter’s
strong performance. However, most of its gains were then given up as the gold price fell to
$1,862 before rebounding in the final days of the quarter.

                                                                                                                                                    Gold Report   03
Market Performance Gold Report - Q3 2020 - Funds People
Market Performance

Quarterly
price returns
Quarterly price returns

   Q3 2018                Q4 2018         Q1 2019             Q2 2019             Q3 2019         Q4 2019   Q1 2020   Q2 2020          Q3 2020

                                                                                                                      12.9%

                                                                9.1%

                           7.7%

                                                                                                                                         5.9%
                                                                                    4.5%
                                                                                                             3.9%
                                                                                                   3.0%

                                            0.8%

    -4.9%

Data: Bloomberg, annual change in gold price, in USD. 2020 is for the year to 30 September.

                                                                                                                                Gold Report      04
Market Performance Gold Report - Q3 2020 - Funds People
Market Performance

Annual                                                           Annual price performance

                                                                                                             -5.4%     2000

price returns                                                                                                          2001
                                                                                                                       2002
                                                                                                                                     2.4%
                                                                                                                                                               24.7%
                                                                                                                       2003                             19.3%
As shown in the previous chart, Q3 marked the eighth
consecutive quarter of positive returns for the gold price                                                             2004         5.5%
in USD terms. The gain of 5.9% follows the 12.9% return in
the second quarter of the year. On a 12-month basis, gold                                                              2005                            17.9%
has returned 28.1%.
                                                                                                                       2006                                23.1%
Gold has returned 24.3% over the first three quarters of
2020, more than in any of the previous nine full year periods.                                                         2007                                              30.9%
Over the last two decades, there have been only three years
when gold ended with a higher return, with 2007 seeing that                                                            2008         5.7%
period’s highest annual return of 30.9%. We would need to
see gold finish the year above $2,000 to challenge that feat.                                                          2009                                    24.3%
                                                                                                                       2010                                            29.5%
                                                                                                                       2011                10.0%
                                                                                                                       2012           7.0%
                                                                           -28.2%                                      2013
                                                                                                          -1.4%        2014
                                                                                                    -10.4%             2015
                                                                                                                       2016             8.1%
                                                                                                                       2017                    13.5%
                                                                                                          -1.5%        2018
                                                                                                                       2019                            18.3%
                                                                                                                     YTD 2020                                  24.3%

                                                                 Data: Bloomberg, annual change in gold price, in USD. YTD 2020 is for the year to 30 September.

                                                                                                                                                                     Gold Report   05
Market Performance Gold Report - Q3 2020 - Funds People
Market Performance

Asset Class                                                          Quarterly asset class returns
                                                                                                                                        US Treasuries
                                                                                                                                        Gold
                                                                                                                                        USD 1mo deposit

Returns
                                                                                                                                        US Corporate Bonds
                                                                                                                                        US High Yield
                                                                                                                                        MSCI World
                                                                                                                                        BBG Commodity
                                                                                                                                        MSCI Emerging Markets
Q3 was clearly a risk-on quarter, with riskier assets yielding the
greatest returns, and this theme played out across equities,

                                                                                                                                            9.6%
fixed income and commodities. Global equities returned 9.0%

                                                                                                                                  8.0% 9.0%
over the three months, with emerging markets outperforming
developed markets. The strong performance of commodities
was driven largely by industrial metals; the copper price
increased by 11.0% in Q3. The preference for riskier assets                          5.9%                                  4.7%
was evident in fixed income, as US high yield outperformed

                                                                                                     0.4% 1.6%
investment grade credit, which outperformed Treasuries.

The risk-on dominance in Q3 has taken high yield and
                                                                      0.1%
emerging market equities into positive territory for the
12-month period. However, the performance of the gold price
remains substantially ahead of other asset classes. Only the
broad commodities index is below where it was at the end of          Annual asset class returns
September 2019, declining by -8.9% over the 12 months.

                                                                     28.1%

                                                                                      8.2% 7.8%                                   8.5% 8.0%

                                                                                                                  1.0% 2.3%

                                                                     Data: Bloomberg, in USD terms to 30 September 2020.                          -8.9%
                                                                                                                                           Gold Report     06
Market Performance Gold Report - Q3 2020 - Funds People
Market Performance

Relative strength of the gold price

                            Gold spot price   Moving average 100 Day   Moving average 50 Day      Moving average 200 Day
                            2200

                            2000
  USD per Fine Troy ounce

                            1800

                            1600

                            1400

                            1200

                              Sep19                Dec 19              Mar 20                  Jun 20                Sep 20

                            14-day RSI
                             100
                              90
                              80
                              70
                              60
  Index level

                              50
                              40
                              30                                                                                              All of the charted moving day averages (top chart) continue to show
                                                                                                                              the uptrend of the gold price, albeit the momentum has slowed most
                              20                                                                                              recently. Turning to the Relative Strength Index (bottom chart), the
                              10                                                                                              swift price appreciation over the first six weeks of the quarter saw gold
                                                                                                                              reach an overbought condition from mid-July into mid-August. The
                               0                                                                                              sharp correction sent gold back below $2,000 and, on 21 September,
                                                                                                                              the price crossed its 50-day moving average. This technical sell signal
                              Sep19                Dec 19              Mar 20                  Jun 20                Sep 20   caused an acceleration in the price decline, with the RSI showing that
                                                                                                                              gold came close to oversold territory.

Data: Bloomberg, to 30 September 2020

                                                                                                                                                                                 Gold Report        07
Market Performance Gold Report - Q3 2020 - Funds People
Market Performance

Gold price return, nominal and adjusted for inflation

                                                                                                                               In Q3 2020, gold returned
                            Nominal Gold price    Inflation-adjusted Gold price

                            2000
                                                                                                                               5.9%
                                                                                                                               in nominal terms
                            1750

                            1500
                                                                                                                               5.0%
                                                                                                                               when adjusted
  USD per Fine Troy ounce

                            1250
                                                                                                                               for inflation
                            1000

                             750

                             500

                             250

                               0

                               1970        1975    1980         1985        1990   1995   2000     2005   2010   2015   2020

Data: Bloomberg, to 30 September 2020.

If we adjust the 5.9% nominal increase in the gold price to account for the effect of inflation,
we see gold returned 5.0% in real terms in the quarter. On a 12-month basis, gold returned
26.5% when deflated by the US Consumer Price Index (CPI), which increased 1.3% year-on-
year to the end of August (September CPI reading not available at the time of writing).

                                                                                                                                                           Gold Report   08
Market Performance Gold Report - Q3 2020 - Funds People
Market Performance

G10 currencies
Gold in USD, and returns of G10 currencies
                                                                                           3.1%              4.0%
                                                                                        Norwegian Krone
                                                                         4.1%                              Swedish Krona
                                                                        British Pound
                                                                                            Danish Krone

                                                                                             4.4%
                                                                         Swiss Franc
                                                                                          Euro
                                                                          2.8%
                  1.9%                                                                  4.3%
               Canadian Dollar

                                                                                                                                                      2.3%
                                                                                                                                                    Japanese Yen
In looking at gold, which is priced in USD, and how the
G10 currencies performed against the USD, two things
are apparent: gold was the quarter’s best performer and
the dollar was weak. All 10 currencies within the group
had positive returns against the greenback over the
three months, from currencies generally perceived to be                                                                       3.7%
safe-havens to the currencies of commodity-led economies.                                                                  Australian dollar

Looking into Q4, with the US Presidential election quickly
approaching, we could see potentially significant movements
in the dollar, one direction or the other. Combine that with
uncertainty around the election result, throw in the prospect    Gold
                                                                                                                                          2.5%
of rising inflation as the Federal Reserve seems intent on
remaining ultra-accommodative for the foreseeable future,       5.9%                                                                 New Zealand dollar
and you have the recipe for what could be an important
quarter for gold, and for gold investors.

Data: Bloomberg, returns are for Q3 2020.

                                                                                                                                                 Gold Report       09
Market Performance Gold Report - Q3 2020 - Funds People
Investment risks                             document may not be reproduced or
Past performance is not a guide to           used for any other purpose, nor be
future returns. Investment strategies        furnished to any other person other
involve numerous risks. Investors            than those to whom copies have been
should note that the price of your           sent. Nothing in this document should
investment may go down as well as up.        be considered investment advice or
As a result, you may not get back the        investment marketing as defined in
amount of capital you invest.                the Regulation of Investment Advice,
                                             Investment Marketing and Portfolio
Instruments providing exposure to            Management Law, 1995 (“the
commodities are generally considered         Investment Advice Law”).
to be high risk, which means there is a
greater risk of large fluctuations in the    Investors are encouraged to seek
value of the instrument.                     competent investment advice from
                                             a locally licensed investment advisor
Important information                        prior to making any investment.
This document contains information           Neither Invesco Ltd nor its subsidiaries
that is for discussion purposes only,        are licensed under the Investment
and is intended only for professional        Advice Law, nor does it carry the
investors in Austria, Belgium, Croatia,      insurance as required of a licensee
Czech Republic, Denmark, Dubai,              thereunder.
Finland, France, Germany, Guernsey,
Hungary, Ireland, Jersey, Italy,             Any calculations and charts set out
Luxembourg, the Netherlands, Norway,         herein are indicative only, make certain
Portugal, Romania, Slovakia, Spain,          assumptions and no guarantee is given
Sweden and the UK, Qualified Clients         that future performance or results will
in Israel, and Qualified Investors in        reflect the information herein.
Switzerland. Marketing materials may
only be distributed in other jurisdictions   Where individuals or the business have
in compliance with private placement         expressed opinions, they are based on
rules and local regulations.                 current market conditions, they may
                                             differ from those of other investment
Data as at 30 September 2020,                professionals and are subject to change
unless otherwise stated.                     without notice.
By accepting this document, you              This document has been communicated
consent to communicating with us             by Invesco Investment Management
in English, unless you inform                Limited, Central Quay, Riverside IV,
us otherwise.                                Sir John Rogerson’s Quay, Dublin 2,
                                             Ireland, Invesco Asset Management
This document is marketing                   Limited, Perpetual Park, Perpetual Park
material and is not intended as a            Drive, Henley-onThames, Oxfordshire,
recommendation to invest in any              RG9 1HH, United Kingdom, Invesco
particular asset class, security or          Asset Management Deutschland GmbH,
strategy. Regulatory requirements            An der Welle 5, 60322 Frankfurt am
that require impartiality of investment/     Main, Germany and Invesco Asset
investment strategy recommendations          Management (Schweiz) AG, Talacker
are therefore not applicable nor             34, 8001 Zurich, Switzerland.
are any prohibitions to trade before
                                             EMEA8106/2020
publication. The information provided is
for illustrative purposes only, it should
not be relied upon as recommendations
to buy or sell securities. In Israel, this
Macro
Factors
Gold Report
Q3 2020

This report is for professional investors/qualified investors/qualified
clients. Please do not redistribute.
Please keep an eye out for future reports,
                                                including a look into how gold performed based
                                                on previous US elections, and a review of supply
                                                and demand trends observed in the quarter.

               This is the second of our four-part series on gold. In this part
               of our Q3 Gold Report, we look at some of the key macro
Introduction   factors that help frame the gold price performance that
               we reviewed in the first part of the series.
Macro Factors

Gold price and real bond yields

                             Gold     10-year TIPS yield (righthand scales, inverted)
                                                                                                                                                                              All-time high of
                            2200

                            2000
                                                                                                                                                 -1.5

                                                                                                                                                 -1.0
                                                                                                                                                                              $2,064 an ounce
                            1800                                                                                                                 -0.5

                            1600                                                                                                                    0
  USD per Fine Troy ounce

                            1400                                                                                                                  0.5

                                                                                                                                                        Yield (%, inverted)
                            1200                                                                                                                  1.0

                            1000                                                                                                                  1.5

                             800                                                                                                                  2.0

                             600                                                                                                                  2.5

                             400                                                                                                                  3.0

                             200                                                                                                                  3.5

                               2007                 2009                   2013                2015                   2017                  2019

Data: Bloomberg, to 30 September 2020. Past performance is not an indicator of future returns.

Since gold is a non-yielding asset, its price tends to be particularly                  inflation target and broader monetary policy objectives. The Federal
sensitive to changes in the income available from competing                             Open Market Committee said it expected to keep interest rates at
perceived “safe havens” such as US Treasuries. Lower bond yields,                       zero until at least the end of 2023, even if inflation rose beyond
especially when adjusted for inflation, reduce the opportunity cost                     its 2% target. That would generally be positive sentiment for gold,
for holding gold.                                                                       which earlier in the month recorded an all-time high of $2,064 an
                                                                                        ounce. Towards the end of the quarter, as markets began to question
In the third quarter, real bond yields hit a record low (-1.1% at the                   whether the statements actually signalled any meaningful shift,
end of August), as concerns grew over the strength of the economic                      real yields moved off their lows, pushing the gold price lower.
recovery in the US and after the Federal Reserve changed its

                                                                                                                                                                                                 Gold Report   03
Macro Factors

Gold price and negative-yielding debt

                             Gold    Stock of negative-yielding debt (righthand scale)

                            2200                                                                                 18

                                                                                                                 16
                            2000
                                                                                                                 14
  USD per Fine Troy ounce

                            1800                                                                                 12

                                                                                                                      USD, trillions
                                                                                                                 10
                            1600
                                                                                                                  8

                            1400                                                                                  6

                                                                                                                  4
                            1200
                                                                                                                  2

                            1000                                                                                  0

                              2014            2015                2016               2017   2018   2019   2020

Data: Bloomberg, to 30 September 2020. Past performance is not an indicator of future returns.

In terms of the bond market more generally, the stock of negative-yielding debt went back
up above $15 trillion during the quarter, as the German Bund curve ended September with
all maturities (out to 30 years) yielding below zero. Central bank purchases and the weaker
economic backdrop have kept yields compressed, especially in Europe where the short
end is anchored to the ECB’s negative policy rate. We have also seen increased issuance
with governments needing to fund their pandemic responses and, as with corporates,
take advantage of the lower-rate environment to refinance their debt profiles.

                                                                                                                                       Gold Report   04
Macro Factors

Gold price and US interest rates

                             Gold    Fed Funds Rate (righthand scale, inverted)

                            2200                                                                                   0.0

                                                                                                                   0.5
                            2000
                                                                                                                   1.0
                            1800
                                                                                                                   1.5
  USD per Fine Troy ounce

                                                                                                                         Upper bound (%, inverted)
                            1600
                                                                                                                   2.0

                            1400                                                                                   2.5

                                                                                                                   3.0
                            1200
                                                                                                                   3.5
                            1000
                                                                                                                   4.0
                             800
                                                                                                                   4.5

                             600                                                                                   5.0

                              2007          2009              2011                2013   2015        2017   2019

Data: Bloomberg, to 30 September 2020. Past performance is not an indicator of future returns.

Although the Fed Funds rate remained unchanged in the quarter, the Fed announced it was
changing its longer-term goals to “a flexible form of average inflation targeting”. With inflation
having struggled to consistently hit its previous target of 2%, as measured by the Personal
Consumption Expenditures (PCE) Index, the Fed is expected to let inflation run above 2% for
some time. With the current Fed median forecast not seeing PCE inflation back at 2% before
the end of 2023, rates are expected to remain unchanged at 0.25% for the foreseeable future.

                                                                                                                                                     Gold Report   05
Macro Factors

Gold price and inflation expectations

                            Gold     US 10yr breakeven (righthand scale)      US 5y5y inflation swap (righthand scale)

                            2200                                                                                                         3.5

                            2000                                                                                                         3.0
  USD per Fine Troy ounce

                            1800                                                                                                         2.5

                            1600                                                                                                         2.0

                                                                                                                                               %
                            1400                                                                                                         1.5

                            1200                                                                                                         1.0

                            1000                                                                                                         0.5

                              2010     2011        2012       2013         2014     2015        2016       2017          2018   2019   2020

Data: Bloomberg, to 30 September 2020. Past performance is not an indicator of future returns.

While the change in the Fed’s stance on managing inflation may not have done much to shift
the market’s view, the speculation of additional fiscal stimulus from the US Government had
more of an effect. Into the end of September, doubt grew over whether a bi-partisan stimulus
package could be agreed, and inflation expectations slipped back. Inflation expectations have
been a key driver of the gold price of late, as reflected in this chart.

                                                                                                                                                   Gold Report   06
Macro Factors

Gold price and the US Dollar

                             Gold     US Dollar Index (righthand scale, inverted)
                                                                                                                                                USD weaker in Q3 by
                            2200                                                                                  83
                                                                                                                                                -3.6%
                            2000                                                                                  88
  USD per Fine Troy ounce

                            1800

                                                                                                                       Index level (inverted)
                                                                                                                  93
                            1600

                            1400
                                                                                                                  98

                            1200

                            1000                                                                              103

                               2015                  2016                    2017      2018         2019   2020

Data: Bloomberg, to 30 September 2020. Past performance is not an indicator of future returns.

Gold is an asset almost universally priced in USD, making the relative value of the greenback
significant in determining its value in foreign currency terms. During the third quarter, the USD
declined further (-3.6%), although recovered somewhat from its near-term low at the end of
August. The chart shows a clear relationship with the gold price: the gold price strengthened
as the USD weakened and then declined as the USD rebounded through September.

                                                                                                                                                                      Gold Report   07
Macro Factors

Gold price and economic risks

                            Gold      Global Economic Policy Uncertainty Index (righthand scale)

                            2200                                                                                                  450

                            2000                                                                                                  400

                                                                                                                                  300
                            1800
  USD per Fine Troy ounce

                                                                                                                                  350
                            1600

                                                                                                                                           Index level
                                                                                                                                  250
                            1400
                                                                                                                                  200
                            1200
                                                                                                                                  150

                            1000
                                                                                                                                  100

                             800                                                                                                      50

                             600                                                                                                      0

                               2010      2011        2012       2013       2014        2015        2016   2017   2018   2019   2020

Data: Bloomberg, to 30 September 2020. Past performance is not an indicator of future returns.

Although economic risk reduced through the quarter, it still remains heightened in a longer-
term context. The Global Economic Policy Uncertainty Index is a GDP-weighted measure
of the frequency of national newspaper articles referencing the economy, uncertainty and
policy-related matters. Obviously, the Index has been acutely impacted by the pandemic and
will continue to be so. Energy prices, geopolitics and other macro factors will also feed into
the level of uncertainty, as will political events leading up to and most likely beyond the US
Presidential election.

Please look out for the third part of our series, in which we will review gold’s performance
during previous elections.

                                                                                                                                                         Gold Report   08
Investment risks                             In Israel, this document may not be
Past performance is not a guide to           reproduced or used for any other
future returns. The value of investments     purpose, nor be furnished to any other
and any income will fluctuate (this may      person other than those to whom copies
partly be the result of exchange rate        have been sent. Nothing in this document
fluctuations) and investors may not          should be considered investment
get back the full amount invested.           advice or investment marketing as
                                             defined in the Regulation of Investment
Instruments providing exposure to            Advice, Investment Marketing and
commodities are generally considered         Portfolio Management Law, 1995
to be high risk, which means there is a      (“the Investment Advice Law”).
greater risk of large fluctuations in the
value of the instrument.                     Investors are encouraged to seek
                                             competent investment advice from
Important information                        a locally licensed investment advisor
This document contains information           prior to making any investment. Neither
that is for discussion purposes only,        Invesco Ltd nor its subsidiaries are
and is intended only for professional        licensed under the Investment Advice
investors in Austria, Belgium, Croatia,      Law, nor does it carry the insurance as
Czech Republic, Denmark, Dubai,              required of a licensee thereunder.
Finland, France, Germany, Guernsey,
Hungary, Ireland, Jersey, Italy,             Any calculations and charts set out
Luxembourg, the Netherlands, Norway,         herein are indicative only, make certain
Portugal, Romania, Slovakia, Spain,          assumptions and no guarantee is given
Sweden and the UK, Qualified Clients         that future performance or results will
in Israel, and Qualified Investors in        reflect the information herein.
Switzerland. Marketing materials may
only be distributed in other jurisdictions   Where individuals or the business have
in compliance with private placement         expressed opinions, they are based on
rules and local regulations.                 current market conditions, they may
                                             differ from those of other investment
Data as at 30 September 2020,                professionals and are subject to change
unless otherwise stated.                     without notice.
By accepting this document, you              This document has been communicated
consent to communicating with us             by Invesco Investment Management
in English, unless you inform                Limited, Central Quay, Riverside IV,
us otherwise.                                Sir John Rogerson’s Quay, Dublin 2,
                                             Ireland, Invesco Asset Management
This document is marketing                   Limited, Perpetual Park, Perpetual Park
material and is not intended as a            Drive, Henley-on-Thames, Oxfordshire,
recommendation to invest in any              RG9 1HH, United Kingdom, Invesco
particular asset class, security or          Asset Management Deutschland GmbH,
strategy. Regulatory requirements            An der Welle 5, 60322 Frankfurt
that require impartiality of investment/     am Main, Germany and Invesco
investment strategy recommendations          Asset Management (Schweiz) AG,
are therefore not applicable nor             Talacker 34, 8001 Zurich, Switzerland.
are any prohibitions to trade before
                                             EMEA8450/2020
publication. The information provided is
for illustrative purposes only, it should
not be relied upon as recommendations
to buy or sell securities.
Supply and
demand
Gold Report
Q3 2020

This report is for professional investors/qualified investors/qualified
clients. Please do not redistribute.
This is the final of our four-part series on gold. In this part
               of our Q3 Gold Report, we look at main drivers of supply and
               demand for the gold market this quarter and in the context
               of recent periods.

               This follows on from our analysis of the performance of the
               gold price and macro factors influencing that price over

Introduction   the quarter, as well as an article looking at how gold might
               perform in view of the US Presidential election.
Supply and demand

Global                                                          Global demand for gold in Q3 2020

                                                                                                                       Tonnes of Gold

demand
                                                                     333.0

Total demand for gold slumped in a remarkable quarter in                                                                                                                   272.5
which the metal’s price hit a record high. Central banks were
small net sellers, breaking a long-term quarterly buying
streak, and ETF demand fell from its record-breaking level of
the previous quarter. Despite other buyers increasing their
activity in the quarter, notably jewellery, Q3 2020 saw the
                                                                                                                        222.1
lowest demand for gold in over a decade at 892.2 tonnes.

Year-to-date, 2,972.1 tonnes of gold have been bought.
Average annual purchases over the past decade have been
4,431 tonnes; therefore, without a significant pick-up in
demand in the final quarter, 2020 could be shaping up to be
a weak year for gold demand.

                                                                                                76.7

                                                                                                                                                  -12.1

                                                                       Jewellery               Technology                   Retail               Central Banks                  ETF
                                                                                                                         Investment

                                                                Data: World Gold Council, showing gold purchased (or sold if negative) for each industry in the three months
                                                                to 30 September 2020.

                                                                                                                                                                         Gold Report   03
Supply and demand

Jewellery demand for gold

                               Gold
                                                                                                                              Average gold price in Q3
                              900
                                                                                                                              11.6% above the
                              800
                                                                                                                              average for Q2
                              700

                              600
  Tonnes of gold, quarterly

                              500

                              400

                              300

                              200

                              100

                                0

    2013                              2014   2015         2016               2017              2018             2019   2020

Data: World Gold Council, to 30 September 2020, showing consumption of gold by jewellery industry by quarter.

Despite the aggregate picture, jewellery demand had its strongest quarter of the year so
far, at 333 tonnes, as economic activity began to rebound following the relaxation of social
distancing measures in some regions. Year-on-year, however, demand from the jewellery
sector was 8.9% lower as price-sensitive jewellery buyers were deterred by the higher price
levels – the average gold price in Q3 was 11.6% above the average price for Q2 – and end-
purchasers faced an uncertain economic outlook as coronavirus cases were on the rise again
into quarter end.

                                                                                                                                                         Gold Report   04
Supply and demand

Central bank purchases of gold

                               Gold
                                                                                                                                Central banks net sellers of gold
                              300
                                                                                                                                First quarter
                              250                                                                                               since Q4 2010
                              200
  Tonnes of gold, quarterly

                              150

                              100

                              50

                                0

                              -50

                                    2013   2014   2015          2016              2017           2018             2019   2020

Data: World Gold Council, to 30 September 2020, showing net purchases (or sales) of gold by central banks by quarter.

Central banks were net sellers of gold in Q3, albeit only marginally, selling 12.1 tonnes
in aggregate during the quarter. This puts an end to an incredible streak in which central
banks had been net purchasers for every quarter since Q1 2011. Turkey was one of the
major sellers in the third quarter this year (along with Uzbekistan), reducing its gold
reserves by 22.3 tonnes as it looked to defend its currency in what has been a difficult
year for the country.

                                                                                                                                                                    Gold Report   05
Supply and demand
  Gold purchased by ETFs, monthly per region of domicile

                           Gold price      North America    Europe    Asia    Other

                           200                                                                                                                                                                     2500

                           150                                                                                                                                                                     2000
Tonnes of gold purchased

                                                                                                                                                                                                          USD per Fine Troy ounce
                           100                                                                                                                                                                     1500

                           50                                                                                                                                                                      1000

                             0                                                                                                                                                                      500

                           -50                                                                                                                                                                        0

                                  Sep 19       Oct 19      Nov 19    Dec 19    Jan 20   Feb 20   Mar 20        Apr 20       May 20        Jun 20        Jul 20        Aug 20        Sep 20

  Data: World Gold Council, to 30 September 2020, showing monthly purchases of gold by ETFs and other gold exchange-traded products. Past performance is not a reliable indicator of future returns.

                                                                                                                                                                                     Gold Report               06
Supply and demand

Gold held by ETFs globally

                                               Gold price    Total known ETF holdings of gold
                                                                                                                                                                 Gold ETFs globally hold bullion worth:
                                              120                                                                             2500
                                                                                                                                                                 US$235 billion
  Amount held, millions of Fine Troy ounces

                                              100
                                                                                                                              2000

                                                                                                                                       USD per Fine Troy ounce
                                               80
                                                                                                                              1500

                                               60

                                                                                                                              1000
                                               40

                                                                                                                               500
                                               20

                                                0                                                                                  0

                                               2004         2006         2008          2010     2012   2014   2016   2018   2020

Data: Bloomberg, to 30 September 2020, showing total amount of gold held by ETFs and other gold exchange-traded products globally.
Past performance is not a reliable indicator of future returns.

Overall holdings of gold-backed ETFs and similar exchange-traded products hit another
record in the quarter, with 3,880 tonnes of gold bullion now held by these products globally,
valued at approximately US$235 billion at the end of the quarter. This is despite a 36.8%
quarter-on-quarter decline in purchases of gold by these products. July was the second-
strongest month of the year for buying, but the final two months of the quarter were the
weakest since the coronavirus outbreak in March. The European market experienced modest
sales of gold in August as the metal peaked at $2,064, although over the entire quarter the
region saw holdings increase. Asia saw its strongest quarter of the year with net purchases
of 20.7 tonnes, most of which transacted in August.

                                                                                                                                                                                                    Gold Report   07
Supply and demand

Global gold supply, quarterly

                  Mine production     Recycled gold      Net producer hedging      Total demand
                                                                                                                    Quarter-on-quarter mined production increased
              1400
                                                                                                                    13.8%
              1200

              1000
 Tonnes of gold

                  800

                  600

                  400

                  200

                    0

                        2013        2014          2015          2016            2017           2018   2019   2020

Data: World Gold Council, to 30 September 2020.

Gold supply rebounded in the quarter to 1,223.6 tonnes, the highest level since Q4 2019.
As social distancing measures were relaxed, but not removed completely, quarter-on-quarter
mined production increased 13.8% but was 2.2% lower than the previous 12 months. This
was also seen in recycled supply as, although the high price of the commodity encouraged an
increase in the supply of recycled material for the quarter by 24.1%, levels were still below Q3
2019 by 2.3% when the average price was $1,472.3. Hedging positions continued to reduce
as speculators closed out positions, taking advantage of relatively high prices.

                                                                                                                                                    Gold Report     08
Investment risks                             used for any other purpose, nor be
Investment strategies involve                furnished to any other person other
numerous risks. Investors should note        than those to whom copies have been
that the price of your investment may        sent. Nothing in this document should
go down as well as up. As a result, you      be considered investment advice or
may not get back the amount of capital       investment marketing as defined in
you invest.                                  the Regulation of Investment Advice,
                                             Investment Marketing and Portfolio
Instruments providing exposure to            Management Law, 1995 (“the
commodities are generally considered         Investment Advice Law”).
to be high risk, which means there is a
greater risk of large fluctuations in the    Investors are encouraged to seek
value of the instrument.                     competent investment advice from
                                             a locally licensed investment advisor
Important information                        prior to making any investment.
This document contains information           Neither Invesco Ltd nor its subsidiaries
that is for discussion purposes only,        are licensed under the Investment
and is intended only for professional        Advice Law, nor does it carry the
investors in Austria, Belgium, Croatia,      insurance as required of a licensee
Czech Republic, Denmark, Dubai,              thereunder.
Finland, France, Germany, Guernsey,
Hungary, Ireland, Jersey, Italy,             Any calculations and charts set out
Luxembourg, the Netherlands, Norway,         herein are indicative only, make certain
Portugal, Romania, Slovakia, Spain,          assumptions and no guarantee is given
Sweden and the UK, Qualified Clients         that future performance or results will
in Israel, and Qualified Investors in        reflect the information herein.
Switzerland. Marketing materials may
only be distributed in other jurisdictions   Where individuals or the business have
in compliance with private placement         expressed opinions, they are based on
rules and local regulations.                 current market conditions, they may
                                             differ from those of other investment
Data as at 30 September 2020,                professionals and are subject to change
unless otherwise stated.                     without notice.
By accepting this document, you              This document has been communicated
consent to communicating with us             by Invesco Investment Management
in English, unless you inform                Limited, Central Quay, Riverside IV,
us otherwise.                                Sir John Rogerson’s Quay, Dublin 2,
                                             Ireland, Invesco Asset Management
This document is marketing                   Limited, Perpetual Park, Perpetual Park
material and is not intended as a            Drive, Henley-onThames, Oxfordshire,
recommendation to invest in any              RG9 1HH, United Kingdom and Invesco
particular asset class, security or          Asset Management (Schweiz) AG,
strategy. Regulatory requirements            Talacker 34, 8001 Zurich, Switzerland.
that require impartiality of investment/
                                             EMEA8984/2020
investment strategy recommendations
are therefore not applicable nor
are any prohibitions to trade before
publication. The information provided is
for illustrative purposes only, it should
not be relied upon as recommendations
to buy or sell securities. In Israel, this
document may not be reproduced or
You can also read