World Gold Council: Strong investment demand fueled gold spike, thanks to central banks

Andrew Naylor, Head of the Middle East and Public Policy at the World Gold Council, said that the strong performance of gold in recent months is mainly driven by the rise in investment demand.

In an interview with Argaam, the official clarified that this demand was fueled by institutional buying in LSE’s over-the-counter (OTC) market and gold-backed exchange-traded funds (ETFs), along with an increase in individual purchases of gold bars and coins, which remained strong despite rising prices.

Furthermore, central banks have played a key role in supporting demand, as they continued to buy gold at a strong pace, although the rate of purchases slowed compared to the record levels seen in 2022. Central banks currently account for about 20% of global gold demand, according to Naylor.

He also pointed out that jewelry demand declined in volume terms due to higher prices, even though the total value of sales remained high, confirming that investment demand has been the main driver of the gold market for quite some time.

Naylor explained that the current uptrend in gold prices began in May 2024, when clear signs emerged that the US Federal Reserve was moving toward cutting interest rates.

“This shift attracted Western investors back to the market after a long absence, at a time when about 74% of global gold demand remains concentrated in Asia and the Middle East,” the regional head was quoted as saying.

He noted that gold-backed ETFs saw a 6.1% hike in total assets during Q3 2025 — equivalent to around 222 tons. The total increase since year-start until Oct. 10 reached 20%, distributed among North America (22%), Europe (12%), and Asia (56.4%).

In the Middle East, investment demand grew by 4% during the first half of 2025, while jewelry demand declined, given the higher gold prices in the region, according to Naylor.

On factors currently influencing gold prices, Naylor said the market is reacting to rising geopolitical and economic turbulence, amid regional tensions and the reemergence of trade barriers. This is in addition to inflationary pressures, which lifts the bullion’s appeal as a safe haven.

“Another driver is the growing discussion around de-dollarization, driven by concerns over high debt levels in advanced economies such as the US, France, and the UK, prompting some to question the long-term sustainability of the US dollar as the dominant reserve currency,” he added.

Naylor also pointed out that the decline in the US dollar’s value makes gold — which is priced in the US currency — more attractive to investors worldwide.

The official also emphasized the strong correlation between the Global Geopolitical Risk Index and gold prices. Historically, a 100-basis-point rise in the index typically corresponded to a 2.5% uptick in gold prices, reflecting the yellow metal’s sensitivity to geopolitical and economic shifts.

As for market movements, Naylor indicated that the recent sharp leaps in gold prices are largely driven by tactical activity from hedge funds and speculative investors, which may lead to short-term price corrections as short-term trading intensifies at the expense of long-term strategic buying.

“The current valuation of gold, compared to periods of stock market downturns, highlights the precious metal’s strength as a diversification tool and store of value. Historically, gold has shown an inverse relationship with stock markets, especially during downturns,” said Naylor.

He highlighted that price differentials between markets arise from the physical nature of gold, as factors like tariffs, quotas, and physical supply can cause gold to trade at a premium or discount. For example, India recently shifted from a discount to a premium market due to changes in actual inventory availability.

About central bank trends, he said WGC conducted a survey this year showing that most central banks expect global gold reserves to continue booming in the coming period. Accordingly, central banks will likely remain active players in the gold market.

The council has lowered its forecast for central bank demand due to soaring prices but raised its expectations for investment demand, said the regional head.

The continued pullback in interest rates, especially in the US, should reinforce this trend alongside rising concerns about high public debt levels, he continued.

Going forward, the future direction of US interest rates is key for investors. Th Federal Reserve’s fiscal policy — especially amid possible leadership changes — will be crucial in shaping the global trajectory of gold prices, Naylor concluded.