Central banks around the world continue to dominate the gold market, purchasing over 1000 tons of gold for the third consecutive year in 2024, accounting for approximately 20% of last year's total demand.

In the annual and fourth quarter gold demand trend report released on Wednesday (February 5th), the World Gold Council stated that the total demand for physical gold in 2024 has risen to 4974 tons, reaching a historic high.

The report points out that record breaking demand has driven gold prices to continuously reach historic highs. According to price data from the London Bullion Market Association, the average gold price rose to a record high of $2663 per ounce in the fourth quarter of 2024. The average price in 2024 has risen to $2386 per ounce, a 23% increase from the average price in 2023.

The record breaking price of gold led to a trading volume of $111 billion in the fourth quarter. In 2024, this figure reached an all-time high of $382 billion

The report states that in addition to the demand from the central bank, investment demand for gold has also reached a four-year high as demand for over-the-counter trading exceeds relatively neutral demand for gold backed exchange traded funds (ETFs).

The analyst stated in the report, "2024 is the first year since 2020 where holdings have remained largely unchanged, in contrast to the significant outflows in the previous three years

The total investment demand has increased to 1179.5 tons, a 25% increase from 945.5 tons in 2023.

Joseph Cavatoni, market strategist at the World Gold Council, stated in an interview that consumer data continues to show that gold has re established its position as an important global financial asset.

He said, "The purpose of holding gold is clear and easy to understand." "When we observe the demand of central banks, their rationale for holding gold is still very strong. The increasing government debt burden and rapidly changing geopolitical landscape indicate that central banks around the world will continue to purchase gold

Looking ahead, Cavatoni stated that the unpredictability of the Trump administration has led to a resurgence of geopolitical uncertainty, laying the foundation for further demand from the central bank.

After three consecutive years of surprises, there is more evidence supporting the view that central banks may repeat net purchases of over 1000 tons in 2025. However, we remain cautious and reflect this in potential downside risks rather than our core view, "WGC analysts said in the report. We believe that the shift from armed conflict to global trade and economic conflict may support the net buying trend of central banks

At the same time, rising stock market uncertainty, increasing inflationary pressures, and stagnant economic growth are expected to drive multi-faceted investors back into the gold market through ETFs.

We believe that generally low interest rates, high stock valuations, a weaker US dollar, and geopolitical risks (primarily manifested as trade and economic uncertainty) are favorable for gold ETFs, over-the-counter trading, and futures based investments

Cavatoni said that overall, the bigger trend is that, considering all the uncertainties in the market, demand for gold will remain high by 2025, even if gold prices rise.

Although the ETF market is expected to attract new investors, the World Gold Council predicts that demand for gold bars and coins will remain healthy as prices rise and affect consumer purchasing power, but will decrease compared to last year.

According to the report, the total global demand for gold bars and coins is 1186.3 tons, which is basically the same as 1189.8 tons in 2023. The World Gold Council believes that the outlook for 2025 is similar to this.

In the West, the economic downturn and high prices in Europe may put pressure on demand, and inflation concerns and conflict risks may also decrease, but lower interest rates may attract economic activity in Europe in the second half of this year. In the United States, Republican presidential terms have traditionally been accompanied by below average demand for gold bars and coins; however, the geopolitical environment may ease this correction

The jewelry industry is the weakness of the gold market

Despite the historic demand in the gold market in 2024, the record breaking prices of global currencies have had an impact on jewelry demand.

The report states that the total demand for jewelry has dropped to 1877.1 tons, a decrease of 11% from the 2110.6 tons reported in 2023.

The World Gold Council said: "In addition to the fact that the demand for gold and jewelry fell below 1400 tons in 2020 due to the impact of the COVID-19, we need to go back to 2009 to find the last comparable year of demand for gold and jewelry."

An interesting aspect of the gold market is that India has once again become the world's largest consumer of gold, as weak demand from major Asian countries is particularly evident.

The jewelry demand of major Asian countries has dropped to 479.3 tons, a decrease of 24% from the previous year's 630.2 tons.

Throughout 2024, the environment for jewelry demand in major Asian countries is highly challenging, hit by a dual blow of declining income growth and soaring gold prices leading to low consumer confidence. The jewelry retail industry is facing challenges, with stores closed throughout the year, "analysts said.

Meanwhile, India's jewelry industry declined by 2% last year, consuming 563.4 tons of gold.

Analysts said, "In a year where gold prices have repeatedly hit new highs, the fact that annual demand has only decreased by 2% proves the elasticity of India's gold jewelry demand, highlights the responsiveness to tariff cuts in July, and the country's relatively healthy economic growth

The evolution of artificial intelligence is also driving the demand for gold

Although the technology sector and artificial intelligence drove the stock market to a historic high last year, this sector has been largely overlooked in the gold market. However, the company achieved steady growth last year, reaching its highest level in four years.

Last year, the technology industry consumed 326.1 tons of gold, an increase of 7% compared to 2023.

The WGC stated, "During 2024, due to the continued strong application of artificial intelligence and some recovery in the consumer electronics market after a particularly weak 2023, demand for electronic products (the main demand category in this field) has been boosted

Although strong demand pushed up gold prices last year, it also stimulated an increase in supply. The World Gold Council stated that global gold supply increased by 1% in 2024, reaching a record high of 4974.5 tons.