Gold prices have surged by over 28% y-t-d in USD terms, repeatedly breaking records to reach $2,790.10 per ounce at the end of October. This marks gold's best performance in over a decade. Although it gave back some of its gains following the U.S. elections, gold remains the best-performing asset of the year.
The price rally has been driven by safe-haven demand spurred by heightened risks and uncertainties, robust purchases by central banks, and rate cuts by major central banks. While demand from Asian consumers slowed significantly this year, a weaker U.S. dollar during the third quarter continued to fuel investment flows into gold until the elections.
Following the elections, however, a sharply stronger dollar and a spike in U.S. Treasury yields increased the opportunity cost of holding gold, leading to a retreat from record highs.
Looking ahead, markets are focusing on Donald Trump's second presidential term and the potential implications of his policies for the global economy. The U.S. economy continues to perform strongly, and the Federal Reserve has signaled a slower path of easing next year, citing rising inflation risks. In the near term, a strong U.S. dollar and higher interest rates are likely to pose key risks to gold.
On the other hand, market consensus suggests that inflation, which has already stalled in its progress toward the target rate, is likely to rise under the Trump administration.
This outlook for higher inflation in 2025 keeps the long-term view for gold positive, though gains are expected to be more modest. Additionally, Trump's policies could cause significant volatility in financial markets in new year, potentially creating trading opportunities for investors.
Meanwhile, ongoing geopolitical risks and the potential for a trade war could boost demand for safe-haven assets like gold, supporting prices even in the face of a strong dollar. A turbulent global environment may also push central banks to strengthen their gold reserves.
The World Gold Council (WGC) estimates that central bank demand above 500 tons annually would support gold prices, while falling below this level could exert additional downward pressure.
Finally, potential stimulus measures from the Chinese government aimed at supporting economic growth could contribute to increased gold demand from Chinese consumers. However, it remains uncertain whether these measures will offset the potential impact of Trump's tariff hikes.
2024 Gold Demand: Jewelry, Investment, and Central Bank Purchases
According to the WGC's Q3 2024 report, total gold demand (including over-the-counter demand) reached a new record of 1,313 tons, reflecting a 5% y-o-y increase. This surge in demand drove gold prices to several new all-time highs during the quarter, with the value of demand rising by 35% compared to the previous year and surpassing $100 billion for the first time.
The WGC categorizes global gold demand into four main segments: jewelry, industrial demand, investment demand, and central bank purchases.
To begin with, jewelry demand accounted for 46.2% of total demand in the third quarter of the year. Of this jewelry demand, 58% came from India and China. Between the start of the year and September 30, India accounted for 28.1% of total jewelry demand, while China contributed 29.8%.
Secondly, industrial demand for gold represented 7% of total demand in the third quarter, primarily driven by the electronics sector. The electronics industry accounted for 83% of total industrial demand, while medical applications like dentistry contributed 2.6%, and other sectors made up 14%.
Another significant category of global gold demand was investment demand, solely private holdings. According to WGC data, investment demand accounted for 30.9% of total global demand.
Of this, 74% originated from bars and coins, while 25.9% was held by physically backed gold exchange-traded funds (ETFs). Similar to jewelry demand, a substantial portion of bar and coin demand came from India (28.4%) and China (23%), together making up more than half of the total.
Lastly, another significant driver of global gold demand was central bank purchases. Central banks acquired approximately 693 tons of gold during the first three quarters of 2024, accounting for 15.8% of total global demand.
Although central bank demand is likely to finish the year below previous record levels, it remained strong. The WGC estimates that central bank purchases contributed 7-10% to gold's price increase in 2024.
Asia's Influence on Global Gold Demand: Insights from 2024
Asia, excluding central banks, accounts for over 60% of total global gold demand, with China and India being the largest markets. Together, these two countries make up more than half of global jewelry and bar and coin demand, playing a crucial role in influencing gold prices.
In 2024, ongoing challenges in China's economy weighed on gold demand among Chinese consumers, while the reduction of import duties on gold in India bolstered demand. As a result, Asian demand remained a key driver of gold's price performance throughout the year.
India's economy continues to grow at over 6.5%, with rising incomes fueling gold demand. According to recent data from India's Ministry of Commerce, gold imports in November reached $14.8 billion (approximately 170-180 tons), more than double the previous month's total and over four times the amount recorded in the same period last year.
This figure also represents a substantial increase from the average monthly import of 63 tons during the first ten months of 2024.
This sharp increase in November reflects, in part, the impact of the reduction in gold import duties from 15% to 6% at the end of July. However, November is also a month of high demand due to festivals and weddings.
Additionally, the agricultural harvest following productive monsoon rains between June and September may have boosted incomes and, consequently, gold demand in October and November.
Looking ahead, India is expected to maintain its current growth trajectory and remain less affected by potential tariff hikes compared to other U.S. trade partners. This could support strong gold demand in India through 2025.
On the other hand, the economic challenges facing China, combined with record-high gold prices, have weakened demand for gold jewelry. According to WGC data, China's gold jewelry demand reached 373 tons in the first three quarters of 2024, the lowest level since 2010.
Conversely, uncertainty in China's economy and the depreciation of the Chinese yuan have driven bar and coin demand to 252.6 tons, the highest level in 11 years. Additionally, demand for gold-backed ETFs reached record levels in the third quarter.
Despite these factors, China's total gold demand in the first three quarters of the year declined by 19% compared to the same period last year, representing a significant loss for global gold demand.
Looking forward, the anticipated implementation of high tariffs by Donald Trump is a critical factor for China's economy. If consumer confidence in China remains weak, investment gold demand may rise, but this would likely coincide with a decline in gold jewelry demand.
Since September, the Chinese government has announced various stimulus measures to boost domestic demand and accelerate economic recovery. In 2025, these measures are expected to expand, potentially including looser monetary policy and higher fiscal deficits.
As a result, if these efforts successfully support economic growth, Chinese consumer demand for gold may rebound in the coming year. Otherwise, a continued decline in demand from China is likely to exert additional pressure on gold prices.