(Kitco News) - Although investment demand has picked up in recent months, it remains a weak pillar of support within the marketplace, and 2025 could prove to be another difficult year.
In a recent commentary, Jim Wiederhold, Commodity Indices Product Manager at Bloomberg, highlighted that gold’s weighting in the Bloomberg Commodity Index (BCOM) will drop to 14.29% in 2025, down from this year’s peak of 17.53%.
“This will be the largest absolute percentage change across the 24 commodities futures that make up BCOM,” said Wiederhold in the note. “The next two biggest reductions in weight are seen from coffee and natural gas.”
At the same time, oil and soybeans will see their weighting in the commodity index increase next year.
Wiederhold noted that this is the third consecutive year that gold’s weighting in the BCOM has dropped. He explained that the weighting is determined by the five-year average of a commodity's trading volume and global production.
Although the gold market has seen trading volume pick up this year as prices have rallied nearly 30%, it hasn’t been enough to overcome broader lackluster interest.
“Gold prices have had a banner year so far in 2024, and trading volumes rose by over 20% compared to 2023, but this isn’t reflected in the 5-year trading volume average used to calculate the initial target weights for 2025. The last five full calendar years are used, with 2023 being the last full year,” said Wiederhold. “Over the prior three and a half years, we witnessed declining trading volumes in gold futures. During this time, gold prices moved sideways in a $1,800 to $2,000 range, and this lack of price direction may have contributed to gold trading volumes decreasing from 2020 to the end of 2023. This constitutes a driver for the drop in gold target weights in BCOM this year.”
Although gold’s role in the broader commodity sector appears to be declining, many analysts note that investors are still extremely underinvested in the precious metal. Gold represents about 2% of global portfolios.
Société Générale's multi-asset portfolio strategy currently includes 7% gold as its only major commodity asset. According to its research, investors should own between 5% and 10% of their portfolio in gold.
Although investment demand has long been a critical pillar of support in the gold market, some analysts note that its importance in 2024 was subdued as central bank gold purchases helped push prices to record highs in the first half of the year.
Gold maintained its record run through the summer as investors finally jumped into the market when the Federal Reserve and other central banks started to ease interest rates.
