Gold is the new oil

Gold has already reached 40 new historical highs in 2024, marking a 28% year-to-date increase. This record-breaking performance has been driven by robust central bank and investor buying, which has counterbalanced a notable slowdown in consumer demand.

Central banks have remained net buyers of gold for nearly 15 years, driven by its role as a diversifier, store of value, and safe haven during crises. The WGC expects central bank demand in 2025 to exceed the long-term trend of 500 tonnes, which should support prices. However, a slowdown below this level could pose challenges.

RBI Governor Sanjay Malhotra said that gold prices may now be emerging as a new indicator of global uncertainty, a role once played by crude oil, even as he cautioned that a correction in global equity markets could be on the horizon.

Despite widespread fiscal stress and geopolitical tensions, oil prices have remained relatively stable - a stark contrast to earlier decades when such events would have sent them soaring.

Current expectations for GDP, yields, and inflation suggest positive but modest growth for gold in 2025. China’s consumers have remained on the sidelines, with investors stepping in to support the gold market. The nation’s economic policies, including trade and stimulus measures, will be critical in shaping gold demand. Meanwhile, India is on stronger economic footing with growth above 6.5%. This resilience supports gold consumption and financial gold investment products, which have seen remarkable growth despite constituting a smaller portion of the overall market.

“Despite geopolitical tensions that would have sent oil prices soaring in an earlier decade, they (oil prices) have been very range bound. This could be due to a decline in oil intensity in GDP, not just in India, but across the world. Perhaps gold prices now are showing the kind of movement that oil used to that is acting as a barometer of global uncertainty," the RBI Governor said, PTI reported.

Gold is likely to remain rangebound if existing market expectations are correct. However, a combination of higher rates and lower economic growth could negatively affect investors and consumers. This could be particularly evident in Asia. Conversely, significantly lower interest rates, or a deterioration in geopolitics or financial market conditions will improve gold’s performance. Finally, a key checkpoint will be central bank demand as it will continue to provide a boost to gold if it remains at a healthy level. Gold’s final price performance will depend on the interaction of gold’s four key drivers: economic expansion; risk; opportunity cost; and momentum.

The surge in gold investments in India reflects the strong cultural, financial, and social importance of gold in the country. The global rise in demand, driven by both retail and institutional buyers, along with India’s robust investment in its gold reserves, underscores the growing strategic role of gold in financial markets worldwide. The World Gold Council continues to advocate for gold’s role in creating a more secure and diversified investment portfolio.

The comments come just days after the Reserve Bank of India kept its key policy rate unchanged at 5.5% with a neutral stance, noting that while the global economy has proved more resilient than expected, the outlook remains uncertain.

Gold prices in India remained steady on October 3, extending their rally to a seventh consecutive week of advances. Expectations of further US interest rate cuts by the Federal Reserve and concerns over the ongoing US government shutdown fuel the momentum.

Central banks added a net 15t to global gold reserves in August, based on reported data from both the IMF and respective central banks, as per the latest WGC central bank update.

Global gold demand is projected to remain strong in 2025, driven by significant investment flows, central bank purchases, and ongoing geopolitical uncertainties.

The international gold market in 2025 represents a complex interplay of monetary policy, geopolitical factors, investment flows, and production dynamics. Record prices above $3,400 per ounce reflect gold's enduring appeal as both a safe-haven asset and strategic portfolio component.

As central banks continue accumulating reserves and investors seek alternatives to traditional financial assets, gold's fundamental support appears robust. For producing nations like Australia, where annual output of 300 tonnes contributes significantly to export earnings, the strong price environment translates to substantial economic benefits.

While price volatility will inevitably continue, gold's historic 3000 price surge demonstrates its structural role in the global financial system appears stronger than ever, reinforced by shifting economic power dynamics and persistent uncertainty across multiple fronts. For investors, understanding these complex drivers remains essential for effective portfolio positioning in this dynamic market environment.