Global Gold's $12 Trillion Network: Where Demand Is Really Growing

This context of a colossal above-ground stockpile underscores the scale against which current demand shifts matter. As of year-end 2024, the total above-ground gold stockpile stands at a staggering 216,265 tonnes, with jewelry accounting for nearly half of all gold ever mined – about 97,149 tonnes valued at $144 billion despite a volume decline. This immense jewelry share highlights its enduring cultural and value-preserving role, yet its heavy reliance on affluent markets makes it particularly sensitive to price swings; jewelry consumption fell 11% in volume during 2024 due to affordability constraints, even as spending remained elevated by high prices.

Complementing this traditional pillar, investment demand surged to a four-year high of 1,180 tonnes in 2024. This influx coincided with central banks continuing their aggressive buying spree, marking the third consecutive year exceeding 1,000 tonnes annually – a sustained shift toward gold as a reserve asset. While central bank purchases signal long-term confidence, investment flows remain highly reactive to interest rates and economic uncertainty, creating potential volatility.

Diversification efforts are gaining ground, notably in technology sectors. Demand from technology applications grew 7% to 21 tonnes in 2024, fueled partly by AI adoption – though this represents a relatively small slice of total demand. The tech sector's growth is promising but faces competition from cheaper alternatives and fluctuating semiconductor cycles. Fundamentally, the overall demand landscape remains anchored by the massive jewelry stockpile and the persistent influence of global monetary policy on investment flows, even as newer sources like technology slowly expand gold's utility.

ETFs as the Primary Investment Growth Engine

ETFs have emerged as the most dynamic driver of global investment flows, with Q4 2024 seeing record $26 billion in inflows - the strongest quarter since 2020. This surge propelled total assets to a new high of $472 billion, reflecting a remarkable 23% quarter-on-quarter growth as investors sought diversification amid market volatility.

The regional landscape reveals significant divergence in ETF performance. North America led the charge with $10.6 billion in inflows, while Europe experienced outflows despite still posting net positive contributions. This divergence creates tactical opportunities for investors willing to navigate different regulatory environments and monetary policies across regions.

Physical gold holdings within ETFs climbed 6% quarter-on-quarter to 3,838 tons, demonstrating growing investor confidence in tangible assets despite earlier outflows earlier in the year. The resilience is particularly notable given that December saw a modest $778 million inflow after four years of outflows, pushing annual AUM to record highs.

While ETFs continue to attract capital, liquidity risks remain a concern. The rapid inflows have compressed margin environments for some ETF providers, and the concentration of positions in certain sectors could amplify volatility during market corrections. Investors should remain mindful of these structural risks as they position for continued growth in the ETF market.

Central Banks: The Unstoppable Accumulator

Central banks have firmly entrenched themselves as the dominant force in gold demand, driving a structural shift that persists despite record prices. Their purchases reached 333 tonnes in the fourth quarter alone, marking the third consecutive year with annual buying exceeding 1,000 tonnes. According to the full-year 2024 report, this consistent buying represents roughly 20% of total global demand for the year, eclipsing other sectors like jewelry, which declined significantly.

This accumulation surge is particularly notable given the gold price's historic trajectory. The annual average hit a record $2,386 per ounce, with prices climbing even higher to $2,663 per ounce in Q4. Central banks' willingness to buy at these peaks underscores a strategic, long-term orientation focused on portfolio diversification and currency reserve strength, rather than short-term price fluctuations. Their activity has effectively decoupled from the price movements that typically dampen investment demand.

While ETFs saw strong inflows and record AUM later in the year, reflecting broader investor interest, central bank buying stands apart as a uniquely persistent and policy-driven demand source. This sustained purchasing power, however, isn't immune to global headwinds. Geopolitical tensions can both drive demand (as a safe haven) and disrupt supply chains or market access. Furthermore, significant currency fluctuations, particularly in the US dollar, can influence the relative cost of gold for non-US buyers and impact central bank allocation decisions over time. These factors remind us that even this dominant trend operates within a complex and sometimes volatile global economic environment.

Growth Risks & Market Constraints

Despite recent inflows, liquidity risks linger in European gold ETFs. September saw net outflows of $245 million there, driven by UK funds amid cautious central bank policies according to the 2024 research. This contrasts with global strength: gold ETFs attracted $1.4 billion worldwide that month, extending a five-month inflow streak. While stable holdings after prior volatility offer some comfort, Europe's outflows reveal regional fragility. If geopolitical tensions ease or rates rise, capital could shift abruptly-especially since European ETF liquidity is concentrated in a few funds.

Jewelry demand remains vulnerable to high prices. Consumption dropped 11% to 1,877 tonnes in 2024 as affordability constraints hit according to the full-year 2024 report, even as spending rose 9% to $144 billion-reflecting higher unit prices rather than stronger volumes. With the annual average price at $2,386/oz and Q4 peaks near $2,663/oz, further price spikes toward $3,000/oz would likely accelerate demand cuts. Emerging market consumers, particularly in India and China, could delay purchases if inflation persists, pressuring gold's core consumption base.

Central bank buying faces uncertainty. While Q4 purchases hit 333 tonnes-the third year above 1,000 tonnes total-this trend hinges on volatile factors. Geopolitical tensions and rate cuts in the U.S. spurred demand, but currency strength could reverse course. A stronger dollar would make gold costlier for central banks holding other currencies, potentially slowing purchases. If global risks dissipate or monetary policy tightens, this critical demand pillar could weaken abruptly.