(Kitco News) - Amid rising economic uncertainty and record-breaking gold prices, retail investors have returned to the market in force, reigniting global demand, says the World Gold Council.
In its Q2 Gold Demand Trends report, the WGC highlighted broad-based demand for gold during the second quarter, even as prices reached all-time record highs. Total gold demand — including over-the-counter (OTC) investments — rose to 1,249 tonnes between April and June, marking a 3% increase compared to Q2 2024.
The WGC attributed the surge primarily to strong investment demand in gold-backed exchange-traded funds (ETFs). However, the report also noted robust bar and coin demand, a segment that typically struggles in high-price environments.
Analysts noted that rising economic uncertainty appears to be fueling safe-haven demand for physical bullion.
“Two consecutive quarters generated the strongest first half for bar and coin investment since 2013,” the report said.
In a notable countertrend, the council observed diverging demand for jewelry despite elevated prices. Analysts reported that while the tonnage of gold purchased for jewelry declined globally, overall spending increased.
The report stated that global jewelry consumption fell 14% in Q2 to 341 tonnes, the lowest level since Q3 2020. However, in value terms, annual jewelry consumption rose 21% to $36 billion.
ETF demand back in the spotlight
While the gold market is experiencing widespread growth, investment demand has once again become the dominant market segment. According to the WGC, total investment demand jumped 78% year-over-year to 477.2 tonnes.
Western investors returned to gold-backed ETFs, with inflows during the first half of the year reaching their highest level since 2020. However, Chinese investment demand continues to lead, rising 44% year-over-year in Q2.
“The themes that created such fertile ground for gold investment in Q1 remained very much in play during the second quarter: fluctuating U.S. trade policy; a weaker dollar; heightened geopolitical tensions punctuated by regional flare-ups; close attention to inflation and growth trends; and record-high gold prices that attracted further investment inflows,” the analysts said.
In Q2, 170 tonnes of gold flowed into ETFs. Looking ahead, the WGC said there is still room for growth in ETF demand.
“The 12-month pace of inflows is not extreme, historically, and we believe there is capacity to add more, particularly given supportive fundamentals. This theme extends to OTC investment. We thus see inflows continuing but perhaps at a lower rate than in H1,” they added.
Although easing safe-haven concerns have softened demand somewhat, gold remains a key portfolio diversifier.
“Gold investors have been less sensitive to changes in long bond yields, as we have detailed on many occasions, and the elevated stock-bond correlation is likely to keep it that way,” the analysts said.
The WGC also expects investment demand to pick up as markets anticipate the Federal Reserve may begin cutting rates in September. Rate cuts could lower bond yields and weaken the U.S. dollar, providing two significant tailwinds for gold.
Beyond paper gold, the WGC reported that global bullion demand rose to 370 tonnes, an 11% increase from last year.
Central bank demand slows but remains constructive
Central bank gold buying continues to be a key pillar of global demand, though it slowed in Q2, prompting analysts to revise their year-end targets.
Central banks increased their official gold reserves by 166 tonnes in Q2 — a 21% drop compared to Q2 2024. This marks the second consecutive quarterly decline in demand.
Analysts said this slowdown is unsurprising given record-high gold prices. Nevertheless, H1 demand was still 41% above long-term averages.
“We witnessed a similar slowdown in 2024. We remain constructive on central banks in 2025 and beyond, despite the current lull,” the analysts said. “Stronger growth in foreign reserves or softer gold prices could reignite buying.”
“Gold’s unique characteristics and role as a strategic asset continue to be highly valued by central banks. Its performance in times of crisis, ability to act as a store of value, and role as an effective diversifier continue to be cited as key reasons for an allocation to gold,” they added.
Tech demand for gold slips in Q2
While the technology sector remains a minor gold consumer, interest in this segment has grown due to the evolving AI revolution.
The WGC reported that global trade uncertainty significantly impacted tech-related gold demand, which fell 2% to 78.6 tonnes in Q2.
“The sector landscape is challenging as tariff and export restrictions generate considerable uncertainty and elevated gold prices pressure manufacturers. But demand for AI-related components has remained strong, and consumer electronics shipments saw a rebound following the latest tariff pause. Trade headaches look set to continue in H2’25, likely hampering consumer electronics sales,” the analysts said.
Recycled gold supply lags behind price surge
Despite a surge in prices, the recycled gold supply has not risen proportionally. Overall, total gold supply rose 3% to 1,248.8 tonnes, with mine production increasing 1% to 908.6 tonnes.
The WGC noted that recycled gold supply rose to 347.2 tonnes, a 4% year-over-year increase between April and June — still modest given the price rally.
“A strong price performance, which saw the quarterly average U.S. dollar gold price up 40% y/y and 15% q/q, appears to have been behind the slightly stronger showing from this category. However, we consider the recycled supply response to be slower than expected, considering the magnitude of the price moves,” the analysts said.
