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

Gold prices hit a record $3,728 per troy ounce, doubling since late 2022, primarily driven by robust central bank purchases and strong investment demand, particularly in physically backed ETFs. Central banks, diversifying from the dollar post-Russian sanctions, are expected to buy 900 tons this year—double the 2016-2021 average—while gold ETFs saw their largest first-half inflows since 2020. This sustained institutional and investment-led demand, fueled by geopolitical uncertainty, persists despite a significant contraction in jewellery and coin buying due to elevated prices.

Analysis

Gold has reached a record price of $3,728 per troy ounce, marking a twofold increase since late 2022, driven primarily by institutional and safe-haven demand rather than consumer activity. Central bank net purchases, which have surpassed 1,000 metric tons annually since 2022, are a primary catalyst, fueled by a strategic diversification from the U.S. dollar following Western sanctions on Russia. Projections indicate another 900 tons of central bank buying this year, double the 2016-2021 average. This trend is amplified by strong investment demand, evidenced by the largest first-half inflows into gold ETFs since 2020, totaling 397 tons, with expectations of 500 tons of net ETP investment in 2025. This robust institutional demand, linked to geopolitical uncertainty and concerns over U.S. Federal Reserve independence, stands in stark contrast to the physical consumer market. Jewellery demand, the traditional backbone of physical buying, fell 14% in Q2 2025 to its lowest since the 2020 pandemic, as record prices deter buyers in key markets like China and India, with a 16% slump forecast for the full year. The rally is therefore characterized by a significant divergence between strong institutional inflows and weakening price-sensitive consumer segments.

Key Decisions for Investors

• Investors should prioritize monitoring central bank purchase data and ETF flow reports as primary indicators for the rally's sustainability, given that these institutional drivers are currently overwhelming weak consumer and jewellery demand.
• Given the strong inflows into gold-backed ETFs (such as GLD, GLDM) and a concurrent decline in physical coin sales, these funds represent the primary vehicle for tracking institutional sentiment and may offer more liquid exposure to the current trend.
• The significant contraction in jewellery demand serves as a key risk factor; any erosion of institutional safe-haven demand could leave gold prices vulnerable, as the traditional consumer support base is weak at these elevated price levels.
• Considering the rally's context of dollar diversification and negative sentiment towards dollar-bullish funds (UUP, USDU), gold positions should be evaluated as a hedge against geopolitical instability and potential U.S. dollar weakness.