Why is Gold Demand Soaring? Central Banks Hold the Key
Gold consumption reaches new highs, with central banks leading purchases.
The World Gold Council (WGC) reports a record 4,974 metric tonnes of gold bought in 2024, pushing the total market value to US$382bn.
Central banks remain the biggest buyers, acquiring more than 1,000 metric tonnes for the third consecutive year. Poland leads the way, expanding its reserves by 90 tonnes.
However, the surge in gold prices has weakened demand in the jewellery sector, particularly in China and India, where consumers are pulling back due to higher costs.
Central banks are at the heart of this gold rush, using the metal as a hedge against inflation, currency instability and geopolitical risks. Amid ongoing economic uncertainty, gold remains a strategic asset for many governments.
The WGC highlights this trend, stating: "Geopolitical and economic uncertainty remains high in 2025 and it seems as likely as ever that central banks will once again turn to gold as a stable strategic asset."
Since the war in Ukraine, central banks have nearly doubled their annual gold purchases, part of a broader strategy to reduce reliance on Western financial systems and the US dollar. Countries in emerging markets, particularly in Asia and Eastern Europe, have been driving this trend.
John Reade, Senior Market Strategist at the WGC, notes: "I think the biggest surprise on the demand side is the fact that central banks bought a thousand tons last year."
With net central bank buying continuing for 15 years, their sustained interest has become a stabilising force in the gold market. Unlike private investors, these institutions are less reactive to short-term price fluctuations, providing a steady source of demand.
Investor demand is also rising. The WGC reports a 25% increase in gold investments, with exchange-traded funds (ETFs) experiencing their first positive inflows since 2020.
China and India led these inflows, as investors sought gold bars and coins amid concerns over economic growth, persistent geopolitical tensions and falling interest rates.
Citi has revised its short-term gold price target to US$3,000 per ounce, stating: "We expect gold to continue to rise as a hedge against growth and other risks, including actual and perceived rising growth risks, trade wars, still-high interest rates weighing on growth, continued deterioration in the US labour market, ex-US currency devaluation risks and potential US equity drawdown risks."
Jewellery demand declines as prices climb
While investment and central bank purchases have strengthened, the jewellery sector is struggling. Rising gold prices have led to an 11% drop in demand, with China experiencing the sharpest decline.
According to the WGC, global jewellery consumption has fallen to its lowest level since 2009, excluding the 2020 pandemic-related downturn.
The high cost of gold is making consumers reconsider purchases, particularly in key markets like India, where demand is traditionally strong during wedding and festival seasons.
The WGC report states: "If the gold price remains at current or higher levels, it could further erode jewellery demand, particularly as growth is also weak or slowing in all four major gold regions."
Retailers are adjusting by promoting lighter-weight gold jewellery or shifting focus to other precious metals. However, unless prices stabilise, the sector may continue to face challenges.
Ethical sourcing and supply chain scrutiny
As gold prices rise, concerns over sourcing and ethical supply chains are becoming more pressing.
The WGC is working on a digital database to improve transparency in the industry, aiming to track gold from its origin to the final product. This initiative is designed to tackle illegal mining and prevent illicit gold from entering legitimate markets.
The database will utilise blockchain technology to verify gold bars, initially focusing on the 400-ounce market before expanding to smaller formats.
Illegal mining accounts for roughly 20% of global production and operates mostly outside formal supply chains. Strengthening oversight could help curb this issue and promote responsible sourcing.
The WGC is also piloting a project in CĆ“te dāIvoire in partnership with the World Bank to integrate responsible artisanal and small-scale gold mining (ASGM) into legitimate markets.
If successful, this model could be expanded to other gold-producing nations, improving working conditions and reducing environmental damage.
Goldās record-breaking demand underscores its importance as a safe-haven asset in uncertain economic times. While central banks and investors continue to drive purchases, concerns around ethical sourcing and supply chain transparency are becoming more prominent.
Looking ahead, factors such as interest rates, trade tensions and geopolitical shifts will shape the gold marketās future.
Explore the latest edition of Supply Chain Digital and be part of the conversation at our global conference series, Procurement & Supply Chain LIVE.
Discover all our upcoming events and secure your tickets today.
Supply Chain Digital is a BizClik brand.