.png?crop=0x51x100x93&resize=1920x1080)
Gold demand encompasses both physical gold, such as jewellery, bars, and coins, and "paper gold," which involves financial instruments related to gold. This discussion focuses on the demand for physical gold, while an examination of financial markets and gold-related products will follow in the next section. According to Ghosh, Levin, and MacMillan (2004), gold demand can be divided into two main categories. The first category is "use demand," which refers to the direct applications of gold in producing jewellery, coins, electrical components, and in dental work. The second category is "asset demand," where central banks, governments, fund managers, and individuals invest in gold. Notably, gold serves as both a physical asset and in paper form. Asset demand is often linked to the perception of gold as a reliable hedge against inflation and various forms of economic uncertainty.
The supply of gold is relatively stable and marked by several rigidities, meaning that fluctuations in demand significantly influence gold prices. In contrast, gold demand exhibits a greater price elasticity compared to its supply.
Following the global financial crisis, gold demand saw a notable increase, hitting 4.5 thousand tonnes in 2011. However, this figure dipped to 4.3 thousand tonnes in 2013. Despite experiencing significant annual fluctuations, the overall demand for gold rebounded, reaching consecutive peaks of 4.8 thousand tonnes in 2016 and 4.9 thousand tonnes in both 2021 and 2023.
Investment in physical gold, such as bars and coins, has long been a significant driver of global gold demand. While jewellery remains a popular investment form, bars and coins are typically analyzed separately, as they represent transactions by private investors rather than central banks. Investment demand was historically the second-largest source of global gold demand until 2022, when central bank purchases overtook it.
In 2010, investment demand accounted for 38.5% of total gold demand, but by 2023, this share had declined to 21.2%. Despite this drop in share, physical gold investments remained relatively stable, with 1,204 tonnes purchased in 2010 and 1,182 tonnes in 2023. The year-to-year fluctuations in investment demand are influenced by market conditions, including economic uncertainties and monetary policies.
Geographically, China led the world in investment demand for gold in 2023, accounting for 23.5% of the global total, followed by India at 15.6%. Meanwhile, Germany experienced a sharp 75% decline in gold investment demand, with its global share dropping from 15.5% in 2022 to just under 4% in 2023. Over the past decade, small gold bars and coins have consistently accounted for two-thirds of annual investment demand and one-quarter of total global gold demand.
Gold’s role as an industrial metal is largely attributed to its high conductivity and corrosion resistance. It is widely used in electronics, healthcare, and space exploration. However, industrial demand has seen a downward trend, dropping from 460.7 tonnes in 2010 to 298 tonnes in 2023. This decline is primarily due to the increasing use of alternative materials, such as copper and palladium-coated copper in bonding wires.
In 2010, industrial demand constituted 11% of total gold demand, but by 2023, this share had declined to 6.7%. Notably, the use of gold in dentistry also fell sharply from 10% in 2010 to 3% in 2023. Despite this decline, electronics remain the dominant sector for industrial gold demand, consuming 81% of the gold used in technology in 2023. The metal is crucial in producing connectors, bonding wires, printed circuits, electrical contacts, and semiconductors.
Central banks play an increasingly important role in global gold demand. Before 2008, central banks were net sellers of gold, contributing to supply rather than demand. However, the 2008–2009 financial crisis significantly shifted their stance, leading to a surge in gold purchases as a hedge against economic instability. Since 2010, central banks have accumulated 7,800 tonnes of gold, holding 36,700 tonnes by the end of 2023, which accounts for 17% of the world's total gold reserves.
In 2022, central banks purchased a record 1,082 tonnes, the highest since 1967. In 2023, purchases remained strong at 1,037.4 tonnes. This trend was largely driven by emerging economies, as advanced economies have kept their gold reserves largely unchanged. The share of emerging and developing economies (EMDEs) in global gold reserves rose from 15.9% in 1996 to 31.6% in 2022, while the share of advanced economies declined from 84.1% to 68.4% in the same period.
A key factor behind this rise in central bank demand is the effort to diversify reserves away from the US dollar, particularly in countries facing geopolitical tensions and the risk of sanctions. Gold is seen as an "unfreezable asset" when stored domestically and a strategic hedge against political and financial risks. Notably, Russia has aggressively pursued a de-dollarization strategy, increasing its gold reserves to 25.7% of total official reserves by the end of 2023. China also significantly increased its holdings, purchasing 225 tonnes in 2023, bringing its total reserves to 2,235 tonnes, though gold still only accounted for 4.3% of its official reserve assets.
Poland, Singapore, and India were among other major buyers in 2023. Poland’s central bank acquired 130 tonnes, raising its total reserves to 358.7 tonnes and increasing the gold share of official reserves to 12.6%. Singapore added 77 tonnes, while India followed a steady accumulation strategy, purchasing 16.2 tonnes in 2023, bringing its total reserves to 804 tonnes.
Despite rising global interest rates, which typically reduce gold’s attractiveness by making interest-bearing assets more appealing, strong central bank demand has kept gold prices resilient. The World Gold Council (WGC) predicts that while central banks will remain net buyers, purchases are unlikely to exceed 1,000 tonnes for a third consecutive year. This assessment is supported by surveys of central banks, indicating a continued but moderated interest in gold accumulation.
Overall, demand for physical gold remains diverse and dynamic, driven by investment trends, industrial applications, and central bank policies. While investment demand fluctuates based on economic conditions, central banks’ strategic accumulation and geopolitical uncertainties ensure gold’s enduring significance in the global economy.