Gold demand to continue rising in 2025, driven by central banks, consumers and investors

Gold has risen to multiple all-time highs throughout 2024 and has defied expectations amid a higher for longer interest rate environment. Led by escalating geopolitical tensions in the Middle East and the prolonged Russia-Ukraine conflict, the gold market has seen resilient investment demand in 2024 as investors turned to gold as a hedge against economic uncertainty – and demand is set to continue rising into 2025.

Gold’s record-breaking performance in 2024

Robust central bank gold purchases further supported the price rally, boosted by record-breaking purchases in the first half of the year, with net gold buying on track for another strong year. In Australia, despite the Reserve Bank of Australia holding its cash rate steady at 4.35% in 2024 to combat inflation, other major central banks such as the US Federal Reserve and the European Central Bank have commenced their rate cutting cycles. Since the start of the year to November, gold in AUD was up 34% and outperforming most other major asset classes year-to-date.

Fundamentally, gold’s stellar run in 2024 has continued to be driven by a diverse range of sectors. 

According to the World Gold Council, jewellery was the largest source of global gold demand in the first nine months of 2024, accounting for 46% of the global gold demand, followed by investment such as gold bars, coins and gold-backed ETFs (26%), central bank (21%), and technology (7%). 

However, while the jewellery sector was the largest source of demand for gold, its contribution to global gold demand has significantly declined over the past two decades, with investment and central bank both taking a bigger piece of the pie.

Transformation of gold investment

Two decades ago, the jewellery sector was by far the largest consumer of gold – jewellery accounted for 74% of the global gold demand in 2004, followed by investment (12%), and technology (14%). Central banks, at the time, were net sellers of gold. Over the past 20 years, more global investors have come to accept gold as a reliable, tangible store of value that has moved independently of other financial assets. Through time, gold has been proven that modest allocations can diversify an investment portfolio. The launch of the first gold-backed ETF in the US in 2004 and the subsequent new launches and listings globally also accelerated the investment in gold through a transparent and cost-effective investment vehicle.

Whilst central banks accumulated gold at record pace in the first half of 2024, it was predominately started back in 2008 when the global financial crisis (GFC) prompted a fundamental shift in central bank behaviour towards gold. The aftermath of the GFC encouraged a reappraisal of gold’s role and relevance in reserve asset management. 

Since 2008, emerging market central banks have been increasing their official gold purchasing, while European banks have ceased selling, and the central bank sector now represents a significant source of annual gold demand. 

Technology over the past 20 years continued to use gold as an industrial metal in a broad range of consumer electronics and automotive applications, where its chemical and physical properties combine to make it irreplaceable in high-end devices.

A best-performing asset class

Gold has been one of the best-performing asset classes over the past 20 years. 

The global gold industry revolutionised during this time, transforming the metal from a household jewellery item to a strategic asset and diversifier held by global investors and central banks. 

Between 1 January 2004 and 30 November 2024, gold in AUD rose from A$552/oz to A$4,059/oz, representing an annualised return of 10.0% over the period. In the same time period, Australian equities (represented by the S&P/ASX 200 Net Total Return Index) and Australian Bonds (represented by the Bloomberg Ausbond Composite 0+ Year Index) registered an annualised return of 9.1% and 4.3%, respectively. 

Between 1 January 2004 and 30 November 2024, gold exhibited a monthly correlation of -0.27 and 0.31 with Australian equities and bonds respectively and has shown it did not exhibit high correlation with traditional asset classes – a key factor when constructing a diversified investment portfolio. In the same time period, a hypothetical domestic Australian 60/40 portfolio containing 60% in Australian equites and 40% in Australian bonds would have produced an annualized return of 7.4%, whereas a hypothetical portfolio consisting of 10% gold allocation, 55% Australian equites and 35% Australian bonds would have generated an annualized return of 7.9%.

What’s the outlook for gold in another 20 years, and more immediately, next year?

Looking into the next 20 years, gold’s unique investment characteristics with diverse sources of demand led by jewellery, technology, investment, and central bank sectors is expected to continue to serve multiple roles in investment portfolios including risk management and diversification.. 

In the years ahead, we may continue to see the rising investment for gold globally as investors gradually move away from traditional 60/40 portfolios to multi-asset portfolios with strategic allocations to alternatives including gold.

Looking closer ahead to 2025, we anticipate central bank purchases will remain the foundation for strong gold demand growth to remain as increasingly complex geopolitical and financial environment are navigated, making central bank gold reserves management more relevant than ever. While the jewellery sector’s contribution to global gold demand may slightly decline in the future, the economic, cultural and historical significance of gold in China and India – the world’s two largest consumers of gold jewellery, will likely sustain consumer demand. And finally, demand from the technology sector could further support the ongoing artificial intelligence (AI) boom as gold has increasingly been adopted by high-end chips for AI applications a high-performance computing.