Gold is becoming more mainstream: investors range from individuals to pension and sovereign wealth funds, and they are located in developed as well as in emerging markets. Global investment demand for gold worldwide has grown by an average of 18% per year since the turn of the century.
Central banks have also expanded their use of gold as part of foreign reserves. Collectively, emerging market central banks have tripled their gold holdings over the past decade.
Many factors have contributed to the increase in investor appetite for investing in gold:
- An expanding middle-class in Asia has increased purchasing power in the region
- A renewed focus on effective risk management following the 2008-2009 financial crisis
- A re-evaluation of new sources of portfolio returns after a prolonged period of ultra-low interest rates.
Gold is liquid and accessible. It trades more than US$200 billion a day in the over-the-counter market. Also, new products, such as gold-backed ETFs, have provided alternative ways to access the market.
A source of returns
Often, investors view gold as an asset to hold when risk is high and to sell when the economy booms. But economic growth has a positive effect on gold consumer demand - the lion’s share of annual demand.
Our research shows that investors rely on gold during periods of market uncertainty, pushing demand up when inflation spikes or when the stock market tumbles. This generally influences gold prices in the short- and medium-term. However, one of the most important long-run drivers of gold is positive income growth. An expanding global middle class has translated into a source of positive momentum for demand.
Gold has delivered positive returns over the long run, often outperforming major asset classes.