The aggressive buying has occurred amidst growing concern that India's surging gold imports are posing a potential threat to the country's trade balance and economic stability. According to data from the Commerce Ministry, the country's gold imports in November reached a record high of $14.86 billion, a four-fold increase compared to $3.44 billion in the previous year, primarily driven by demand during festivals and wedding seasons.

Gold is poised for its best annual performance in more than a decade – up 28 percent through November. This is despite the fact that there has been a deceleration in consumer demand, which has been largely offset by central bank and investor buying. Asian investors have been a near constant presence, while lower yields and a weakening US dollar in Q3 fuelled Western investment flows. However, it is gold’s role as a hedge amidst rising market volatility and geopolitical risk that most likely explains its remarkable performance.

All eyes are now focused on what Trump’s second term may mean for the global economy. Thrill-seeking investors may benefit from an early wave of risk-on flows, but potential trade wars and inflationary forces may spill over into an expected subpar economic growth.

According to World Gold Council, the market consensus of key macro variables such as GDP, yields and inflation suggests positive but much more modest growth for gold in 2025. Upside could come from stronger than expected central bank demand, or from a rapid deterioration of financial conditions leading to flight-to-quality flows. Conversely, a reversal in monetary policy, leading to higher interest rates, would likely bring challenges. In addition, China’s contribution to the gold market will be key: consumers have been on the sidelines while investors have provided support. But these dynamics hang on the direct (and indirect) effects of trade, stimulus and perceptions of risk.

More than eight in ten of respondents to a central bank survey have indicated that they expect reserve managers will continue to increase their gold holdings in the next 12 months, according to new data released by the World Gold Council. This is the highest ever recorded since our 2019 annual survey.

The 2024 Central Banks Gold Reserves (CBGR) survey, which collected data from a record 70 of the world’s central banks, also finds that nearly 30 percent of central banks plan to add to their own gold reserves within the next year. This favourable view of gold from reserve managers persists despite two successive years of record central bank purchasing2 and the gold price hitting new all-time highs in 2024.

According to the report, reserve managers indicate that they are looking to gold to help mitigate risks and prepare for further political and economic uncertainty, globally. Although seven in ten still view gold’s legacy as a reason to hold it, other reasons have surpassed it this year. The top three reasons to hold gold now include gold’s long-term value (88 percent), performance during a crisis and its role as an effective portfolio diversifier.

Central banks in emerging market and developing economies (EMDE) maintained their positive outlook for gold’s future share in reserves portfolios. Notably, they were joined by advanced economy central banks which now view gold more positively. More than half of this group said gold would account for a higher proportion of reserves five years from now, a significant increase compared to 2023, when 38 percent of respondents indicated the same view. Advanced economy central banks have also become more pessimistic in their outlook for the US dollar’s share of global reserves, a view which has consistently been more prominent among EMDEs. More than half of advanced economy respondents believe the US dollar’s share of global reserves will fall.

The central banks are expected to remain an important part of the puzzle. Central bank buying is policy driven and thus difficult to forecast, but the WGC surveys and analysis suggest that the current trend will remain in place. Demand in excess of 500 tonnes, which is deemed as the approximate long-term trend, should still have a net positive effect on performance. Overall, central bank demand in 2025 is expected to surpass that. But a deceleration below that level could bring additional pressures to gold. (IPA Service)