Central Banks and OTC Quietly Lift Gold Demand in Q2

Total gold demand including OTC total demand held steady at 1,269 tonnes in Q2 2026, matching the year-earlier quarter. First-half volume reached 2,522 tonnes, up 2% year on year, while value hit a record US$380 billion. The LBMA PM price averaged US$4,506.29 per ounce, down 8% from Q1’s peak yet 37% above Q2 2025.

The surface calm hides a reallocation. Western ETFs posted outflows, jewellery volumes hit multi-year lows, and bar-and-coin buying cooled from extreme highs. Central banks and OTC flows more than filled the gap.

That split between a flat headline and sharp moves underneath is the quarter’s main story. Price stayed high enough to lift the value tally even as several volume categories cooled. Official buying and opaque OTC demand absorbed the slack.

What the Q2 Numbers Show

Identified gold demand (ex-OTC) dropped 14% year on year to 942 tonnes. OTC and other demand jumped 91% to 327 tonnes, lifting the headline total. Supply matched demand at roughly 1,269 tonnes.

Mine production rose 2% to 966 tonnes. Recycling fell 6% to 326 tonnes as softer prices and hopes of higher future prices kept scrap off the market. Net producer hedging stayed negative.

The table makes the rotation plain. Jewellery, bar and coin, and ETFs together lost ground against the prior year or the prior quarter. Central banks and OTC more than offset those declines. The 0% headline change is therefore an average of opposite moves, not a sign that every channel held steady.

Q1 to Q2 shifts inside the same year sharpen the point. Bar and coin dropped from 476.8 tonnes to 307.1 tonnes. ETFs swung from a 62.4-tonne inflow to a 44.8-tonne outflow. Central-bank buying climbed from 56.5 tonnes to 288.9 tonnes over the same span.

Central Banks Rebound After the Q1 Revision

Official institutions recorded net purchases of 289 tonnes in Q2, a fivefold jump from the revised Q1 figure of 57 tonnes and a second-quarter record. The World Gold Council had earlier cut its Q1 central-bank estimate from 244 tonnes to 57 tonnes, moving 187 tonnes into OTC. H1 official demand of 345 tonnes was the lowest first half since 2022.

1. Earlier Q1 print: the Council’s first estimate put official buying at 244 tonnes.
2. Revision: that figure was cut to 57 tonnes, with 187 tonnes reclassified into OTC.
3. Q2 rebound: net purchases hit 289 tonnes, a second-quarter record and a return toward the multi-year average.
4. H1 outcome: the half closed at 345 tonnes, the softest first half since 2022 despite the strong Q2.

• Poland led reported buying with 51 tonnes in Q2 (82 tonnes H1), lifting reserves to 632 tonnes toward a 700-tonne target.
• China added 33 tonnes in Q2, its largest quarter since late 2023, taking reported holdings to 2,346 tonnes.
• Uzbekistan (+16 t), Kazakhstan (+15 t), Jordan and the Czech Republic (6 t each) added breadth.
• Russia sold 22 tonnes; Turkey’s sales slowed to 4 tonnes after heavy Q1 disposals.

Unreported official buying stayed elevated. The latest Central Bank Gold Reserves Survey showed 89% of respondents expect global reserves to rise over the next 12 months and a record 45% plan to increase their own holdings. Geopolitical uncertainty and reserve diversification remain the stated motives.

289 tonnes is the load-bearing official figure for the quarter. It returned buying to the multi-year average after a data-driven lull.

The revision path also explains why OTC looked so strong in the first half. Tonnes that first appeared as official demand were later booked in the OTC line. Q2’s reported official surge therefore restores visibility to a bid that never fully left the market. Breadth across Poland, China, Uzbekistan, Kazakhstan, Jordan and the Czech Republic shows the bid is not confined to one or two large holders.

Sales by Russia and a slower pace of disposals by Turkey did not reverse the net. The survey readings of 89% and 45% point to continued intent even after a soft H1 total.

Jewellery Volumes Hit a Post-Pandemic Low

jewellery consumption fell 17% year on year to 278 tonnes, the weakest second quarter since the pandemic. High prices and inflation squeezed affordability. Yet Q2 jewellery spending rose 14% to US$40 billion. H1 jewellery value climbed 22% to US$86 billion even as tonnage dropped sharply.

• China mainland consumption fell 28% to 50 tonnes, the lowest Q2 since 2004; H1 spend still rose 11% to US$21 billion.
• India dropped 15% to 75 tonnes; H1 value rose 26% to US$21 billion. Import duty hikes and policy signals weighed after April support from Akshaya Tritiya.
• Consumers shifted to lighter pieces, lower-carat designs, old-for-new exchanges and lower-premium investment products.

The volume-value split is no longer temporary. Gold retains wallet share as a gift, store of value and status item even when fine weight falls. Substitution into bars and coins further pressure jewellery fabrication in Asia.

China and India together still anchor global jewellery tonnage, so their double-digit volume declines set the tone for the category. Both markets nonetheless posted higher H1 spend at US$21 billion each. Buyers did not abandon gold. They reduced fine weight per purchase and leaned on exchanges of older pieces.

Lighter pieces and lower-carat designs let households keep ceremonial and gifting demand alive at a lower metal cost per item. Old-for-new flows recycle metal inside the retail channel rather than releasing it as fresh scrap supply. That habit links the jewellery weakness directly to the soft recycling print on the supply side.

Investment Mix Tilts Toward OTC and Asia

Total bar, coin and ETF investment sank 46% year on year to 262 tonnes. Bar and coin held nearly flat at 307 tonnes after two extraordinary prior quarters. ETFs saw 45 tonnes of outflows, driven by softer prices, higher inflation and rate expectations in North America, and a stronger dollar. H1 ETF demand stayed barely positive at +18 tonnes.

OTC demand of 327 tonnes became the growth engine, especially in Asia. Chinese investors continue to favour physical and investment products under low domestic rates, property weakness and favourable VAT treatment for bars and coins. Indian buyers still add on dips despite monsoon and income risks. Western ETF flows now track real yields and dollar moves more tightly again, a pattern visible in the negative correlation with US 10-year TIPS yields.

Crowd commentary on X noted the same split: price-sensitive Western money rotates while official and Asian private demand treats dips as accumulation opportunities. The Q1 reclassification itself underlined how opaque some official and OTC flows remain.

Bar and coin at 307 tonnes looks soft only against the two extraordinary quarters that came before it. Against a longer history it remains a solid physical bid. The ETF outflow is the clearer Western retreat. Softer prices, higher inflation, rate expectations in North America and a stronger dollar all pulled in the same direction.

Asian OTC demand runs on a different checklist. Low domestic rates, property weakness and favourable VAT treatment keep Chinese buyers in physical products. Indian buyers still treat dips as entry points even with monsoon and income risks in view. That is why OTC can rise while listed Western products fall.

Supply Barely Moves

Total supply was flat. A 2% rise in mine output offset the recycling decline. Elevated prices and healthy margins support production, yet operational constraints and long lead times limit upside. Recycling stays subdued relative to price because holders expect further gains and near-market scrap stocks are thin. Collateralised gold in India and old-for-new exchanges in China further reduce outright scrap flows.

The market therefore remains demand-led. Any H2 surplus or deficit will turn more on investment and official buying than on a sudden supply surge.

Mine output at 966 tonnes shows that higher prices do feed production, but only slowly. Long lead times mean today’s margins cannot deliver a quick tonnage spike. Recycling at 326 tonnes, down 6%, confirms that price alone does not free scrap when holders still expect further gains.

Thin near-market scrap stocks compound the effect. Metal already pledged as collateral in India or turned over through old-for-new counters in China never reaches the open scrap channel. Supply therefore cannot rebalance the market on its own in the near term.

How High Prices Split Volume From Value

The average LBMA PM fix of US$4,506.29 per ounce, still 37% above Q2 2025 even after an 8% retreat from the Q1 peak, is the mechanism behind several of the quarter’s odd-looking prints. Headline tonnes held flat at 1,269 while H1 value reached a record US$380 billion. Jewellery tonnes fell 17% yet Q2 jewellery spend rose 14% to US$40 billion and H1 jewellery value climbed 22% to US$86 billion.

The same price level that squeezes fine weight in jewellery also supports mine margins and keeps scrap holders waiting. It cools Western ETF demand when real yields and the dollar firm, yet it does not deter official buyers or Asian OTC accumulators who measure value over a longer horizon.

• Jewellery: lower tonnes, higher spend, lighter and lower-carat product mix.
• Investment: Western ETF outflows against firm Asian physical and OTC demand.
• Supply: modest mine growth, restrained recycling despite elevated prices.
• Official sector: 289 tonnes of Q2 buying that treats price dips as opportunity.

Record value on flat volume is therefore not a contradiction. It is the arithmetic result of a high average price meeting a bid that has shifted toward holders less sensitive to the last few hundred dollars on the fix. H1 volume of 2,522 tonnes, up only 2%, still produced US$380 billion because that price level did the heavy lifting.

Why Western And Asian Bids Now Diverge

The quarter drew a clear line between price-sensitive Western paper flows and longer-horizon official and Asian private demand. ETFs lost 45 tonnes in Q2 and H1 ETF demand was only barely positive at 18 tonnes. Bar, coin and ETF investment combined sank 46% year on year to 262 tonnes. Over the same period central banks bought 289 tonnes and OTC demand reached 327 tonnes.

Western flows have tightened their link to real yields and the dollar again, including the negative correlation with US 10-year TIPS yields. Asian physical buyers answer to domestic rates, property conditions, VAT rules and cultural gifting patterns. Official institutions cite geopolitical uncertainty and reserve diversification, motives that do not reset with each FOMC meeting.

Poland’s push from 632 tonnes toward a 700-tonne target and China’s 33-tonne quarter, its largest since late 2023, illustrate the official side of that divergence. Unreported official buying stayed elevated alongside the reported figures. Survey readings of 89% expecting higher global reserves and 45% planning to raise their own holdings suggest the official bid has institutional backing beyond a single quarter’s spike.

The practical implication is simple. Soft patches driven by Western ETF outflows can print in the identified-demand line without forcing the headline total lower, so long as OTC and central banks keep absorbing metal. That is the reallocation the surface calm concealed.

How the Second Half Is Taking Shape

The World Gold Council’s outlook is clear. investment remains the principal growth driver through the rest of 2026, increasingly via OTC activity and Asian buying. Central banks stay on course for another strong year, though likely below the 2025 total. Jewellery volumes face continued pressure from high prices. Mine production and recycling offer only modest growth.

Investment demand should remain constructive over the remainder of 2026. OTC activity and Asian investment are expected to make a greater contribution, while Western gold ETF flows may remain sensitive to real yields, monetary policy expectations and the US dollar.

That assessment comes directly from the council’s outlook section. Near-term Western ETF headwinds include markets pricing a possible October rate hike and TIPS yields near 2.5%. Potential offsets include a softer dollar, weaker credit conditions or equity volatility around mid-terms. Seasonal liquidity patterns have historically favoured August. Asian physical demand and official buying provide the structural counterweight.

Price action itself has already reflected shifting macro bets. recent dollar and Fed pressure on gold and earlier stalls near key price levels show how quickly flows can reverse when real rates or the dollar move. Those swings matter more for ETFs than for the official sector or Asian OTC buyers who have already demonstrated they will accumulate through softer patches.

Technology demand edged higher to 80 tonnes on AI-related electronics offsetting consumer weakness. That support carries downside risk if AI returns disappoint or the broader electronics cycle softens.

The second-order result of Q2 is therefore straightforward. Headline demand steadied and value set a record because central banks and OTC flows absorbed the cooling in Western paper gold and price-sensitive jewellery tonnage. That same mix looks set to define the balance of the year.

H2 will test whether the official and Asian bid stays large enough to offset any further Western ETF sensitivity. Mine production and recycling, offering only modest growth, will not resolve that question. Investment composition will.