The modern gold market is a picture of diversity and growth. Since the early 1970s, the volume of gold produced each year has tripled, the amount of gold bought annually has quadrupled and gold markets have flourished across the globe.
Gold is now bought by a far more diverse set of consumers and investors than at any previous time in history.
Gold has emotional, cultural and financial value and different people across the globe buy gold for different reasons, often influenced by a range of national socio-cultural factors, local market conditions and wider macro-economic drivers.
Gold’s diverse uses, in jewellery, technology and by central banks and investors, mean different sectors of the gold market rise to prominence at different points in the global economic cycle. This diversity of demand and self-balancing nature of the gold market underpin gold’s robust qualities as an investment asset.
Gold jewellery represents the largest source of annual demand for gold per sector. This has declined over recent decades, but it still accounts for around 50% of total demand. India and China are by far the largest markets, in volume terms, together accounting for over 50% of current global gold demand. The Asian and Middle Eastern markets are dominated by demand for purer, high-caratage gold.
Gold has unique properties as an asset class. Modest allocations to gold can be proven to protect and enhance the performance of an investment portfolio. Even so, globally, gold still only makes up less than one per cent of investment portfolios. However, this is changing and investors of all sorts are coming to accept gold as a reliable, tangible long-term store of value that has moved independently of other assets. The annual volume of gold bought by investors has increased by at least 235% over the last three decades.
Central bank demand
The past decade has seen a fundamental shift in central banks’ behaviour with respect to gold, prompted by reappraisal of its role and relevance after the 2008 financial crisis. Emerging market central banks have increased their official gold purchasing, while European banks have ceased selling, and the sector now represents a significant source of annual demand for gold.
Gold has long been central to innovations in electronics. Today the unique properties of gold and the advent of 'nanotechnology' are driving new uses in medicine, engineering and environmental management. Gold can be used to build highly-targeted methods for delivering drugs into the human body, to create conducting plastics and specialised pigments, or advanced catalysts that can purify water or air. It has also been used in dentistry for centuries. Although most technological applications use low volumes of gold, their impacts are very diverse and wide-reaching.
Mine production accounts for the largest part of gold supply – typically, 75% each year. However, annual demand requires more gold than is newly mined, and as mining supply does not respond to price changes quickly the shortfall is made up from recycling.
Gold is virtually indestructible, so nearly all of the gold ever mined is theoretically still accessible in one form or another and potentially available for recycling. The majority of recycled gold - around 90% - comes from jewellery, with gold extracted from technology providing the remaining 10%.