The gold market is currently witnessing a significant shift, largely influenced by central bank activities and the resulting rippling effect across the globeAs of 2024, central banks have united in their approach, collectively purchasing over 1000 tons of gold for the third consecutive year—a staggering figure that accounts for roughly 20% of last year’s total gold demandThis pattern highlights a relentless endeavor by central banks to bolster their gold reserves amidst a fluctuating global economy.

According to the World Gold Council's recent annual report, which provides insights into gold demand trends, the physical demand for gold skyrocketed to an unprecedented 4,974 tons in 2024. This surge marks the highest demand ever recorded in the history of gold tradingThe impact of such demand is evident, with gold prices hitting new peaks—averaging at $2,663 per ounce in the fourth quarter and seeing a notable annual average of $2,386 per ounce, a 23% increase from the previous year.

The amalgamation of record-high prices and high trading volumes resulted in a staggering market value for gold, reaching $111 billion in the fourth quarter alone, culminating in an annual value of $382 billion for 2024, which is unparalleled.

Investment in gold has also escalated, setting a four-year high as demand from over-the-counter (OTC) transactions surmounted other forms of investment such as gold-backed exchange-traded funds (ETFs). Analysts pointed out that 2024 is remarkably the first year since 2020 where the holdings have remained stable, which is a stark contrast to the previous three years, characterized by substantial outflows.

The overall investment demand surged to 1,179.5 tons, marking a 25% increase from the 945.5 tons recorded in 2023. Joseph Cavatoni, a market strategist at the World Gold Council, emphasized that consumer data suggests gold has re-established itself as a vital global financial asset

Advertisements

He stated, “The rationale for holding gold remains robust, especially with the increasing government debt burden and shifts in geopolitical dynamics pushing central banks toward the continued acquisition of gold.”

Looking ahead, geopolitical uncertainties arising from the unpredictability of the new U.Sgovernment form a robust foundation for further central bank demandCavatoni predicts that there is substantial evidence suggesting that central banks may duplicate their approach and once again purchase over 1,000 tons by 2025. Nonetheless, he adopted a cautious stance due to potential risks, reflecting the overarching concerns in the gold market while remaining optimistic about demand trends that could stem from global conflicts transitioning towards trade and economic skirmishes.

Additionally, the increase in stock market uncertainty, intensifying inflationary pressures, and stagnating economic growth are anticipated to drive ordinary investors back into the gold market through ETFs

Advertisements

Cavatoni noted, “We see the wind at the backs of gold ETFs and OTC transactions being fueled by generally lower interest rates, elevated equity valuations, a weakening dollar, and geopolitical risks primarily linked to trade uncertainties.” This suggests a favorable climate for gold, driven by the accumulation of uncertainties in various markets.

Even as they anticipate renewed interest in the ETF market, the World Gold Council forecasts that while demand for bars and coins will remain healthy, there might be a slight decline compared to last year due to the pressures rising gold prices impose on consumer purchasing powerThe total demand for gold bars and coins is expected to hover around 1,186.3 tons, roughly in line with the previous year's figure of 1,189.8 tons.

Analysts highlighted that Western markets face unique challenges, with Europe grappling with economic downturns and high prices that exert pressure on demand

Advertisements

Inflation concerns coupled with diminishing risks of conflict could also adversely affect demandHowever, lower interest rates might attract some economic activity in Europe as the year progressesIn the U.S., historical patterns show that demand for gold bars and coins has typically been lower during Republican presidencies, but geopolitical instability could temper this downturn.

Another significant aspect of the gold market is its jewelry sectorAlthough the market saw historic demand in 2024, the record-high prices of global currencies have taken a toll on jewelry demand, which dipped to 1,877.1 tons, compared to 2,110.6 tons in 2023—a striking 11% decreaseThe World Gold Council noted that to find a comparable year in terms of jewelry demand, we would have to return to 2009, excluding the pandemic-affected lows of 2020 when demand fell below 1,400 tons.

Interestingly, India regained its title as the world’s largest gold consumer, a role previously dominated by China, which faced a notable downturn in demand

Chinese jewelry demand plummeted to 479.3 tons, marking a 24% decrease from 630.2 tons the previous yearThe challenges facing jewelry demand in China in 2024 are formidable, highlighted by faltering income growth and soaring gold prices leading to declining consumer confidence, resulting in shop closures in the retail sector.

Meanwhile, India managed to minimize its jewelry sector’s downturn at just 2% from the previous year, with consumption recorded at 563.4 tons of goldThis relative resilience exemplifies the jewelry demand's adaptability amid multiple pressures, notably responding to tax reductions and benefitting from the nation's moderately strong economic growth.

Moreover, developments in artificial intelligence have significantly driven gold demandDespite the tech sector and AI propelling stock market highs, the gold market overlooked much of this growth until recently, where it reached its highest levels in four years amidst substantial consumption

alefox