(Kitco News) - The gold market continues to face significant headwinds from higher interest rates and elevated bond yields, but investment demand and stronger-than-expected central bank purchases are expected to provide important support for the precious metal through the end of the year, according to the World Gold Council.
In its latest Gold Demand Trends report published Tuesday, the World Gold Council (WGC) said that total global gold demand, including over-the-counter investment, fell 1% year-over-year to 1,369 tonnes in the third quarter. The analysts added that year-to-date demand currently stands at 3,881 tonnes, virtually matching the 2025 record. At the same time, although demand volumes have edged lower, the value of gold consumption reached a record $566 billion during the first nine months of the year.
Looking ahead, the WGC said it expects investment demand to increase by approximately 200 tonnes in 2026 compared to last year. Although investment demand remains a critical driver for the precious metal, the updated forecast represents a downgrade from the organization's previous estimate of 400 tonnes of annual growth.
At the same time, the WGC has raised its outlook for central bank gold purchases, which are now expected to at least match 2025 levels following surprisingly strong demand in the third quarter.
The updated forecasts come as the gold market struggles to recover from a two-month downtrend that has pushed prices below $4,000 an ounce.
The WGC noted that rising interest rates, elevated bond yields and a stronger U.S. dollar could continue to weigh on gold investment. However, persistent inflation, fiscal sustainability concerns and geopolitical uncertainty are expected to provide some support.
"This suggests that fiscal concerns and broader uncertainty have partly offset the higher opportunity cost of holding gold," the report said.
The WGC also highlighted potential market volatility surrounding the U.S. midterm elections, renewed geopolitical tensions and financial market stress as factors that could influence gold demand through year-end.
Central bank demand expected to remain strong
Although investment demand is expected to drive annual growth, central banks continue to represent a significant source of underlying support for the precious metal.
According to the analysts, central banks purchased 321 tonnes of gold in the third quarter, an increase of 42% compared to last year and well above the five-year quarterly average of 227 tonnes.
Central bank purchases during the first nine months reached 675 tonnes, an increase of 6% from the same period last year.
The WGC noted that official-sector purchases accelerated as gold prices moderated from their first-quarter highs. However, the analysts added that strategic diversification and risk management remain the primary drivers of central bank demand.
The report also highlighted the significant amount of unreported buying. Of the estimated 321 tonnes purchased during the quarter, only 120 tonnes were officially reported, meaning roughly 63% of demand came from unreported activity, a trend that has been in place for the last four years.
China and Poland dominated disclosed purchases, accounting for 104 tonnes combined. The People's Bank of China purchased 63 tonnes, while the National Bank of Poland added 40 tonnes.
The analysts noted that central banks appear increasingly sensitive to gold prices, potentially creating some stability during market corrections. However, they cautioned that this relationship does not guarantee a price floor.
ETF demand rebounds, but physical investment slows
Turning to investment demand, the WGC reported that global gold-backed exchange-traded funds attracted 211 tonnes of inflows during the third quarter, more than reversing the outflows recorded in the previous quarter.
Total ETF holdings reached a record 4,256 tonnes, while the value of those inflows totaled a record $31 billion.
European-listed funds led the recovery, adding 92 tonnes, followed by North American funds with 81 tonnes. Asian funds attracted another 34 tonnes.
However, physical investment demand was considerably weaker.
Global bar and coin purchases fell 19% year-over-year to 268 tonnes, their lowest quarterly level in four years, as investors waited for a clearer price trend.
Despite the quarterly weakness, bar and coin investment during the first nine months reached 1,053 tonnes, the strongest year-to-date performance since 2013.
China remained a bright spot, with quarterly bar and coin demand rising 7% to 79 tonnes. Chinese investment demand during the first nine months reached a record 393 tonnes.
In contrast, Indian bar and coin demand fell 40% to 55 tonnes, while U.S. demand dropped 40% to eight tonnes.
The WGC said a sustained recovery in physical investment will likely require either a clearer directional move in gold prices or an external economic catalyst.
High prices continue to weigh on jewellery demand
While investment demand and central bank purchases remain supportive, elevated gold prices continue to undermine jewellery consumption.
Global jewellery demand fell 17% year-over-year to 313 tonnes during the third quarter, the weakest third-quarter performance in the WGC's data series dating back to 2000.
However, the value of jewellery purchases increased 2% to $43 billion, highlighting the impact of higher prices.
Chinese jewellery demand declined 22% to 66 tonnes, while Indian consumption dropped 20% to approximately 100 tonnes.
WGC analysts expect jewellery demand to remain under pressure through year-end as consumers increasingly favour smaller, lighter-weight and lower-carat products.
Meanwhile, gold demand from the technology sector increased 3% to 85 tonnes, supported by artificial intelligence infrastructure and advanced semiconductor manufacturing.
Electronics demand rose 5% to 72 tonnes, its strongest quarterly performance since late 2017. However, the WGC expects overall technology demand to remain relatively stable as high gold prices encourage manufacturers to reduce gold usage where possible.
Record mine production fails to boost overall supply
On the supply side, global mine production increased 3% to a third-quarter record of 1,071 tonnes. The WGC expects annual mine production to reach another record high in 2026.
Canadian mine production increased 22%, supported by newly commissioned operations and increased output from existing mines.
However, higher production was offset by an 8% decline in recycling to 314 tonnes, its lowest quarterly level in nearly three years.
Total gold supply declined 1% to 1,369 tonnes.
The WGC expects subdued recycling to offset record mine production, resulting in a modest decline in total gold supply for 2026.
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