- A shift in investor dollars has supported gold prices, resulting in the first quarterly net build in over two years.
- Central bank buying is strong and on track to hit near-record levels this year.
- Falling interest rates provide a tailwind for the gold market that will help propel it to new highs this year and in 2025.
Gold prices are trending strongly higher in 2024, supported by record demand, and are likely to hit new highs this year and again in 2025. While the latest data from the World Gold Council is mixed, the net result is a 5% increase in total FQ3 volume demand compounded by higher prices. The value of demand growth topped 35%, driven by investment inflows that are expected to continue in 2025. Investment demand is driven by falling interest rates, providing a strong market tailwind. Gold is more attractive as a long-term investment when rates are low, and we are in a falling interest rate environment.
Among the report's takeaways is that Gold ETF (NYSE:GLD) investment demand was positive in Q3 for the first time in two and a half years, reverting from a significant outflow last year to a net gain of 95 tonnes.
That is a significant shift in market dynamics, aligning with the shift in central bank policies globally.
OTC investment in gold was also robust, nearly doubling year over year to post the seventh consecutive quarterly net inflow.
The Gold Price Has Strong Tailwinds to Drive It Higher
Jewelry sales, about 45% of the total gold market, fell due to the higher prices, but developments in India offset weakness in North America and China. India announced changes in its latest budget that will significantly impact demand and demand quality over the next several years. India accounted for 16% of total global demand in 2023, so the budget changes are a critical factor for gold prices.
India's budget changes include reducing the import duty on gold, silver, and platinum, with the levy on gold falling from 15% to 6%, and improving the holding time to qualify for long-term capital gains and long-term capital gains tax. The holding period was cut from three years to two years, and the tax rate was reduced to 12.5% from 20%, significantly improving the attractiveness of holding gold for the long term.
Central bank demand was also strong. The pace of central bank buying in Q3 slowed but remained on track to match 2023 levels, which are the second-highest on record. Central bank demand is broad but concentrated in emerging markets where its liquidity aids diversification, reduces default risk, and hedges against macroeconomic uncertainty. Central banks in emerging markets are expected to continue buying robustly in 2025 as their economies develop. Coincidentally, emerging market growth and the growing global middle class is another tailwind for the gold market; retail demand increases with wage growth.
Artificial Intelligence Drives Demand for Gold
Artificial intelligence and technology are emerging as drivers of gold prices. The demand for technological, electronic, and industrial purposes tops 12% of the net, with technology up 7% and electronics up 9%. The primary driver is RAM, CPUs, and motherboards, which can hold as much as a kilogram of gold in every tonne. The number of motherboards, GPUs, and RAM devices is growing daily due to the expansion and advancement of data centers, which may include half a million motherboards each, not counting the GPUs, which are central to the AI story. Regarding data center forecasts, the DC market capacity is expected to double by 2023, growing at a 20% to 30% CAGR by the end of the decade.
The price action in gold is bullish. The market is trending strongly higher and increasing in strength monthly. The chart of monthly gold prices shows momentum increasing with each upswing over the last decade, converging with the latest high and indicative of higher prices to come. The weekly and daily charts are a little weaker, suggesting a consolidation or price pullback is imminent, but neither aligns with a recognized signal of topping or reversal. The trend is intact. Critical support is at the 30-day EMA near $2700; a move below that could lead to a deeper correction with a target near the 150-day EMA. 