From Jewellery to Reserves: How Gold’s Demand Mix Is Changing

Summary insight

Global gold demand is pivoting from consumer jewelry toward official reserves and investment, with central banks sustaining multi‑year buying since late 2022 as jewelry consumption softens under record prices.

What changed after 2022

• Central bank demand accelerated from Q3 2022 onward, transforming the demand mix and creating a persistent floor under prices.
• Geopolitical tensions and asset freeze risks pushed reserve managers to diversify away from concentrated currency holdings.
• Investment demand in ETFs, bars, and coins rose in recent quarters as investors sought a hedge against inflation, policy uncertainty, and market volatility.

The new demand mix

• Official sector: Net purchases by central banks have remained elevated for multiple years, turning the official sector into the most consistent incremental buyer.
• Investment: ETF inflows and robust bar/coin buying have delivered back‑to‑back strong quarters, with value terms hitting records alongside the price.
• Jewellery: Retail consumption has softened over the last three quarters as high prices curb volume, even though total spending in currency terms remains stable.
• Technology: A smaller slice of total demand, with cyclical electronics trends partly offset by advanced computing and AI‑related applications.

Why central banks are buying

• Sanction-resilient stores of value: Physical gold mitigates counterparty and jurisdictional risk in a fragmented world.
• Diversification: Adding non-fiat reserve balances reduces currency exposures and lowers correlation with traditional reserve assets.
• Liquidity and credibility: Deep, well‑functioning bullion markets offer liquidity while reinforcing confidence in reserve adequacy.

Why is investment demand firm

• Macro hedge: Gold historically diversifies equity and bond risk when inflation, growth, or policy paths are uncertain.
• Momentum and price discovery: Successive price highs have drawn tactical flows to ETFs, while bar/coin purchases reflect long‑term accumulation.
• Regional drivers: Strong retail buying in Asia and periodic ETF strength in Western markets have combined to lift overall investment flows.

Why is jewelry demand softer?

• Price elasticity: Record‑high prices deter discretionary jewelry purchases, especially in price‑sensitive markets.
• Substitution and delay: Consumers trade down on purity, delay purchases, or recycle old jewellery when affordability is stretched.
• Cultural anchors persist: Festival and wedding seasons still matter, but volumes face headwinds unless prices stabilize.

Implications for price and volatility

• Structural backstop: Persistent accumulation and steady investment flows provide a durable demand floor.
• Higher‑for‑longer regime: With the demand mix skewed toward reserves and financial investment, pullbacks may be shallower, and rallies can extend on risk events.
• Volatility pockets: ETF flows, currency movements, and rate-path surprises can still introduce sharp, short-term swings.

Opportunities for investors and institutions

• Strategic allocation: Maintain a core allocation as a hedge against policy error, currency fragility, and geopolitical shocks.
• Rebalance framework: Use disciplined bands to add on drawdowns and trim into surges, acknowledging a structurally stronger demand base.
• Vehicles: Match objectives to instruments, ETFs for liquidity and simplicity, bars/coins for long‑term holding and custody control.

Risks to monitor

• Policy shifts: Rapid rate‑path changes or coordinated FX interventions can affect flows and opportunity costs.
• Demand rotation: A sharp recovery in jewelry volumes on price dips may crowd out investment at the margin.
• Supply response: Higher prices incentivize mine output and recycling, which can moderate tightness over time.