Explainer: Gold's record-breaking rally: who's keeping it going?

Gold prices hit a record $3,532 per troy ounce, extending a 90%+ rally since late 2022, primarily driven by robust central bank purchases and strong investment demand. Central banks, diversifying away from the dollar post-sanctions, have consistently bought over 1,000 tons annually since 2022, with an expected 900 tons this year. Concurrently, gold exchange-traded funds (ETFs) recorded significant inflows of 397 tons in the first half of the year. While high prices have led to a 14% decline in jewellery demand, the sustained institutional and retail investment appetite underscores a structural shift in gold's demand dynamics, emphasizing its role as a strategic asset.

Analysis

Gold's rally to a record $3,532 per troy ounce, a surge of over 90% since late 2022, is fundamentally driven by a structural shift in demand towards its role as a strategic reserve and safe-haven asset. The primary catalysts are significant central bank purchases and robust investment inflows into exchange-traded funds (ETFs), fueled by geopolitical tensions, trade conflicts, and concerns over U.S. monetary policy independence. Central banks have consistently acquired over 1,000 metric tons annually since 2022, seeking to diversify away from the U.S. dollar, and are projected to buy another 900 tons this year. This institutional demand, which now accounts for 23% of total annual demand, is complemented by strong ETF inflows, which saw their largest first-half addition since 2020 at 397 tons. This investment appetite starkly contrasts with weakening consumer demand; the high price has caused jewellery demand to fall 14% in Q2 2025 and is projected to slump 16% for the year, particularly in price-sensitive markets like China and India. Even within retail investment, there's a notable shift from coins to bars, though overall net physical investment is still expected to rise 2%, indicating sustained but evolving private investor interest.

Key Decisions for Investors

• The sustained and large-scale buying from central banks, driven by long-term de-dollarization trends, provides a strong structural support for gold prices, suggesting that long positions remain strategically viable despite the recent run-up.
• Investors should closely monitor the divergence between institutional inflows and physical demand, as the significant 14-16% drop in jewellery consumption could signal a potential price ceiling or increased volatility if investment demand were to falter.
• Given that geopolitical factors and monetary policy concerns are the primary drivers, portfolio allocation decisions for gold should be increasingly weighted towards macro-level catalysts rather than traditional indicators like consumer demand in India and China.