World Gold Council Sees Anomaly

Gold has been dominating financial market news as Goldman Sachs raises its forecast, predicting prices could hit US$2,900 per ounce by early 2025 (up from their previous estimate of US$2,700). This optimism comes from an unprecedented increase in purchases from central banks (especially emerging markets) who are bolstering their gold reserves as a hedge against global instability.

Gold prices often rise with lower interest rates, but central bank buying has created a new driver for demand. Goldman Sachs projects that just an additional 100 tonnes of gold could push prices up by 2.4%. The financial security offered by gold has taken centre stage since 2022 when the freezing of Russian central bank assets highlighted the risks of sanctions. Emerging market central banks, traditionally less reliant on gold, are “catching up,” strengthening their reserves to safeguard against geopolitical and fiscal uncertainties. As US debt now stands at 124% of GDP, reliance on U.S. Treasury bonds has become a concern, pushing policymakers to diversify with gold.

Western investor interest is also gaining momentum, fuelled by fears around the upcoming U.S. presidential election and trade tensions. While high gold prices make some investors cautious, Goldman Sachs expects interest to increase as rates fall, with Western-held gold ETFs likely to rise. This could set up a competitive race for gold reserves between central banks and private investors, adding even more support for price growth.

Gold Demand Rockets, Reaching New Records in Q3

The World Gold Council’s latest report underscores gold’s surging demand, which climbed 5% year-over-year to an incredible 1,313 tonnes in Q3. That's an all-time record for the third quarter. This demand surge saw gold prices hit new highs, with the total value of demand exceeding US$100 billion for the first time. Inflows into gold ETFs led the charge, marking the first positive quarter since Q1 2022 and reversing last year’s outflows. This surge was driven by falling interest rates, geopolitical tensions, and the growing appeal of gold for portfolio diversification.

While bar and coin investments saw a slight decline, strong demand in India provided a crucial offset. Despite a 12% drop in jewellery purchases by volume, consumers spent 13% more on gold jewellery than last year, showing their willingness to pay for the precious metal even in smaller quantities.

Central banks, while slowing their purchases slightly, continued to be significant buyers. Their year-to-date purchases remain strong, aligning with 2022’s historic pace. Meanwhile, technological demand for gold, especially in AI applications, rose by 7% year-over-year—a modest increase but a promising trend in gold’s diverse applications. It looks like the AI hype turned out to be solid in this case.

The LBMA (PM) gold price broke multiple records during Q3, averaging 28% higher year-over-year at US$2,474 per ounce. OTC investment doubled, marking the seventh consecutive positive quarter and adding an essential layer to gold’s ongoing rally.

Professional and Private Investment to Drive Demand

Gold’s demand trajectory remains strong according to the report. The World Gold Council anticipates that professional investment, coupled with bar and coin demand, will sustain gold prices even as consumer demand softens. Central bank buying may slow slightly, but the momentum from diverse investment channels increasing global liquidity could keep gold on its upward path.