By the end of September, the gold price had posted a more than 43% growth year on year, driven by strong demand for safe-haven assets, inflows to exchange-traded funds (ETFs), a weaker dollar, and the diversification of gold reserves by central banks - after a new incentive in 2022 - to reduce their dollar dependence. Although central banks and jewelers slowed down their purchases of the precious metal in the second quarter of this year, as its price climbed from one all-time high to another, this didn’t slow down a steady bull run of gold prices to new highs.
This rally is the most significant one since the late 1970s, when the global energy crisis triggered an inflationary shock that resulted in four-fold gold price increase between 1976 and 1980. At the same time, and the price of gold has surpassed the dynamics seen at the height of the COVID-19 pandemic or during the 2007-2009 recession. The rising gold prices are part of an inflation-driven commodity supercycle, which also sees a rise in prices for industrial metals such as copper, silver, and platinum, but gold remains a preferred store of value and a means of capital transfer.
While gold prices had already doubled by late August 2025 compared to its 2022 average price, a remarkable moment occurred for gold in September this year as the gold price exceeded its inflation-adjusted peak set in January 1980, when the prices reached $850 per ounce, equivalent to approximately $3,590 per ounce at today’s exchange rate.
Source: Bloomberg Intelligence
The current rally is less volatile, but the common feature is that in those days, as it is now, central banks in many countries diversified their reserves actively as they considered holding dollar assets risky. Banks were responding to the freezing of Iran’s assets by Jimmy Carter, the President of the United States, in response to the seizure of hostages at the American embassy in Tehran.
A new catalyst for gold in September was the start of an interest-rate cut cycle by the US Federal Reserve, accompanied by the White House’s attacks on the cautious leaders of the financial regulator. According to Goldman Sachs’ estimates, any damage to the Fed’s independence could push gold prices to $5,000 per ounce.
Demand structure
Traditionally, demand for gold is dominated by the jewelry industry (in 2024, the demand from jewelers was 1.89 thousand tonnes). The exception was the 2020 pandemic, when the demand for investment gold was record-breaking (1.8 thousand tonnes), while jewelers sharply reduced consumption (to 1.4 thousand tonnes). Last year, investment demand was 1.18 thousand tonnes, with central banks accounting for 1.09 thousand tonnes.
Gold demand by sector:
Global gold demand in the second quarter of 2025 amounted to 1.08 thousand tonnes, up 10% from the same period last year, according to the World Gold Council (WGC). Total gold demand by value jumped by 45% year-on-year to $132 bn.
A key factor in the demand growth was the inflow of gold into ETFs that remained high for the second consecutive quarter. The influx of investment was driven by the uncertainty of the global trade policy, geopolitical instability, and rising gold prices. Investors in gold bars and coins were also attracted by rising prices for gold and its reputation as a ‘safe haven’. The first half of this year has been the most active as for investments in gold bars and coins since 2013.
Jewelry industry
Due to record gold prices, jewelry consumption in the second quarter was very subdued and practically declined to the level of the pandemic period of 2020, reaching 341 tonnes (down 14% year-on-year), which is the lowest figure since the third quarter of 2020. Demand declined by 30% quarter-on-quarter from the five-year quarterly average of 487 tonnes. A significant part of the decline was due to China and India, with their combined market share falling below 50% for the third time in the last five years. According to the WGC, the surge in gold prices in the two countries reduced the jewelry affordability amid persistently low consumer confidence, rising household savings, and trade tensions between the USA and China, as well as the USA and India. But jewelry spending increased across the board, because jewelry consumption grew 21% year-on-year by value, to $36 bn.
The WGC expects the jewelry demand to remain sluggish throughout the year. Amid high prices, jewelry demand is likely to remain low as consumers adapt to higher prices more slowly than earlier.
India accounts for 20% to 25% of global gold demand, driven by the demand for jewelry, which traditionally serves not only as gifts for weddings and other celebrations, but also as a popular investment tool. Surendra Mehta, national secretary of the Indian Bullion and Jewellers Association, told Bloomberg that during the three-week autumn festive season this year - a key sales season generating the lion’s share of annual revenue - sales were expected to fall by 27% year-on-year due to record gold bar prices. Demand for jewelry is typically strong between the nine-day Navaratri holiday in September and Diwali in October (this year), with gold bar prices rising by about 50% compared to the same holiday sales season last year.
Investment demand
Overall investment demand for gold in the second quarter soared by 78% to 477 tonnes, while investments in gold bars and coins increased by 11% year-on-year to 307 tonnes. ETF inflows were 170 tonnes compared to outflows (7 tonnes) a year earlier.
The appeal of gold faced headwinds amid a rebound in the US stock market and labor market data. However, concerns about the impact of the US economic policy and a weakening dollar remained high enough to support demand for gold as a safe haven and a risk hedging instrument, according to the WGC survey.
Prices for gold bars and coins also showed a rather strong rise, largely due to a significant growth in demand in China and Europe year-on-year. In particular, demand in China in the first half of the year has reached its highest level since 2013, at 239 tonnes (up 26% year-on-year), and was a record one by value ($12 bn).
In addition to global factors, two specific factors are at play in China’s gold investments, the WGC notes. Firstly, alternative investment opportunities are limited as domestic stock indices have performed poorly for a long time, prices for real estate continue to decline, and banks keep on cutting interest rates. Secondly, the continued accumulation of gold by People’s Bank of China (PBC) is sending a signal that is followed by retail investors.
These factors are likely to remain relevant for gold investors in China until the end of the year, the WGC believes. Further participation of the domestic investor will also be facilitated by regulatory changes allowing Chinese insurers to participate in the gold market.
Quarterly gold ETF flows:
In the third quarter, ETF inflows slowed down to 75.6 tonnes (from 94.7 tonnes a year earlier), with Asian funds experiencing the most significant decline in inflows. In August, inflows into Asian funds turned negative, with China suffering the most losses, as shares continued climbing and local investors were switching over from gold to other options.
The US funds were the leaders in inflows, followed by European funds:
Central banks
Central banks became a key driver in the long-term rise in gold prices. The pace of their gold purchases doubled after the outbreak of the conflict in Ukraine, when the freezing of a large part of Russia’s foreign exchange reserves underscored gold’s appeal as a reserve asset. This is largely why prices for the precious metal, which had long hovered around $1,800 per ounce, have more than doubled since the end of 2022.
Central banks remain strategic buyers of gold, according to the WGC data, but they are sensitive to price levels. A 26% rise in gold prices in the first half of the year to new record levels contributed to a decline in purchases of gold by central banks. Reflecting this trend, the WGC forecasts the demand from central banks to drop to 815 tonnes in 2025 from 1.045 thousand tonnes last year.
In the second quarter, the demand for gold from central banks slowed down again, as it did in January-March, falling by 33% quarter-on-quarter to 166 tonnes. Total purchases of gold in the first half of the year declined by 415 tonnes, down 21% year-on-year (525 tonnes), to the lowest level since the first half of 2022. However, the quarterly level remains 41% above the level between 2010 and 2021, before the gold purchases of gold by central banks surged.
“If you’re targeting a proportion of your foreign exchange reserves to be in gold, when the gold price goes up a lot, that reduces the incentive to buy”, says John Reade, a strategist at the WGC.
The National Bank of Poland became again the largest buyer in the second quarter, adding 19 tonnes of gold to its reserves, although this is much less than 49 tonnes it added in the first quarter. Poland’s official gold reserves are estimated now at 515 tonnes, or 22% of total reserves. The State Oil Fund of Azerbaijan and the National Bank of Kazakhstan increased their reserves by 16 tonnes of gold (to 181 and 306 tonnes, respectively). The People’s Bank of China continued to moderately increase its gold reserves. In the second quarter, it reported purchasing 6 tonnes of gold, half the amount of the gold purchased in the first quarter. The PBC’s gold reserves now amount to 2.299 thousand tonnes.
In July, central banks increased their gold reserves by 10 tonnes only, the lowest quantity since the beginning of the year.
Despite the reduced purchases of gold, the outlook for central bank demand remains favorable. The fact that central banks continue to add gold despite higher prices highlights their favorable attitude to gold as a strategic asset in times of uncertainty, according to the WGC. The WGC survey shows that the overwhelming majority of respondents (95%) expect an increase in global gold reserves of central banks over the next 12 months, while 43% believe their own gold reserves will also increase over the same period. None of the respondents expect a decrease in their gold reserves.
Supply
The top five gold producers are China, Russia, Australia, Canada, and the United States, accounting for approximately 37% of global gold production.
Global gold production by region in 2024 (tonnes):
Source: World Gold Council
Gold market supply, including recycling, increased by 3% in the second quarter to 1,250 tonnes. Mined gold output reached a record high of 909 tonnes, up 1% from the previous record high of 900 tonnes in the first quarter of 2018. A significant gold production growth was observed in Brazil, where the gold mining at the G Mining’s Tocantinzinho project is ramping up, as well as in Ghana, Uzbekistan, and Canada. Meanwhile, the production of gold in Indonesia, Mali, Mexico, and Burkina Faso declined for both geological and regulatory reasons.
Over the past 14-15 years, all five major gold-producing countries, except the United States, have seen the growth in gold production.
Gold production of the top five producing countries.
According to the WGC, gold refining volumes rose by 4% year-on-year to 347 tonnes in the second quarter amid rising gold prices. However, the response from recycling the gold was slower than expected given the scale of the price change. Gold production remains below expectations and below the peaks of production seen in 2011 and 2012. The WGC attributes this to positive price expectations among gold items owners, prompting them to hold on to their gold hoards in the hope of further rise in gold prices. Furthermore, people in countries experiencing economic and political stress lack alternative risk-free investment options, so they do not consider gold to be a ready source of cash.
Overall, the gold production for the year could break the 2018 record, according to the WGC. However, uncertainty regarding the suspension of production at Barrick’s Loulo-Gounkoto gold mine in Mali makes it difficult to provide a more precise forecast.
The effect of interest-rate cuts
Historically, gold has shown certain performance patterns in response to changes in the US monetary policy, the most significant of which are interest-rate cuts, particularly the first in a series of such cuts. Lower interest rates reduce the opportunity cost of owning assets producing no income, like gold, making it a more attractive store of value. Economic context influences gold’s performance - gold typically performs well when interest-rate cuts occur in response to economic downturns, financial crises, or inflation concerns, as investors seek safe havens during periods of uncertainty.
The price of gold has increased significantly over 24 months following the Federal Reserve’s initiation of interest-rate cuts. After the interest-rate cut cycle began in December 2000 (from 6.5%), the price of gold rose by 31% over two years. Since July 2007, when the interest rate began declining from 5.25%, gold price has risen by 39% over two years. Since June 2019, when the Fed began cutting the interest-rate from 2.4%, the price of gold has risen by 26%. The next cycle of an interest-rate cut began in September 2024, when the Fed lowered an interest rate from a 20-year high of 5.5%. By early September last year, the gold price was around $2,670 per ounce. A year later, the price of gold is almost 42% higher.
Sergey Bondarenko for Rough&Polished
