Who’s driving the gold market in 2025 – investors or central banks? By Investing.com
Key Takeaways
- Gold's rally this year is primarily driven by a resurgence in ETF demand and steady central bank buying, which are acting as 'aggressor' buyers.
- ETF demand is exerting a 50% stronger influence on gold prices this year compared to the 2021-2024 period when investors were reducing holdings.
- Central banks continue to add 400–500 tonnes of gold annually in a trend described as largely price-insensitive.
- Recycled gold supply in 2025 has undershot expectations, resulting in a weaker restraining effect on the metal's price climb.
- Deutsche Bank's analysis suggests gold price changes cause ETF flows, and Treasury yields are the key external variable influencing gold, not the U.S. dollar.
Gold has experienced an impressive rally this year, fundamentally driven by a strong resurgence in exchange-traded fund (ETF) demand coupled with consistent central bank buying, leading Deutsche Bank to label these two as "aggressor" buyers shaping market momentum. ETF inflows have made this year one of the strongest for accumulation since their launch, with Assets Under Management (AUM) now 70% higher than 2020 levels in USD terms, and their price influence is more pronounced than in past cycles. Analyst Michael Hsueh notes that ETF demand is exerting a 50% stronger influence on gold prices this year, while central banks maintain a trend of adding 400–500 tonnes annually, a demand stream described as largely price-insensitive. This combination helps explain why gold has outperformed model-based expectations, contrasting with price-elastic jewellery demand which tends to contract when prices rise. Statistical analysis presents a complex picture, with Granger causality tests suggesting gold price changes cause ETF flows, and Treasury yields being the key variable influencing gold, rather than the U.S. dollar. Despite the current strength, analysts caution that heavy reliance on ETF flows introduces significant downside risks if those inflows stall or reverse, making the Federal Reserve's policy pivotal for the outlook.
