Investing in Gold: A Look at the Commodity

Understanding Gold

The allure of gold as a timeless asset is evident in both its cultural significance and strategic investment role, with the commodity entering its fourth year of increased demand to an all-time high​ (World Gold Council, 2025)​. Its enduring appeal lies in its historical stability and perceived immunity to systemic shocks, attributes that have become increasingly salient amidst current swings of market turbulence. This article critically examines the drivers of gold’s resurgence, the structural dynamics underpinning its supply and demand, and the nuanced characteristics investors must navigate when considering commodities such as gold. 

Supply and Demand in the Gold Market 

The discovery and widespread mining of gold gained traction post-WWII, with the Californian Gold Rush in 1849 sparking a long-standing global fascination with the commodity ​(Norwich University, 2023)​. In recent years, global gold supply has plateaued, with 4,974.5 tonnes produced in 2024 ​(World Gold Council, 2025)​, continuing the steady trend of the past decade. 

Tonnes	2023	2024	YoY
Total supply	4,945.9	4,974.5	+1%
Mine production	3,644.1	3,661.2	0
Net producer hedging	67.4	-56.8	-
Recycled gold	1,234.4	1,370.0	+11%

Gold demand is primarily driven by four sectors, with jewellery accounting for 44% of total demand in 2024 ​(Jaganmohan, 2025)​. However, heading into 2025, demand growth appears to be moderating, coinciding with a global economic slowdown, particularly in major markets such as China. 

Another substantial component of demand is investment, notably from official institutions such as central banks. Alongside government bonds, gold is among the most critical reserve assets due to its intrinsic value and lack of counterparty risk. This attribute is particularly important in volatile market conditions, enabling central banks to safeguard reserves. Currently, 78% of the U.S foreign reserves comprises of gold, making it the largest amount stored in any central bank reserves. Simultaneously, emerging economies like China and Japan are actively increasing their gold reserves from single digit percentages ​(Reuters, 2023)​. 

The bulk of investment demand, however, originates from private investors through either physical or digital gold holdings. Physical gold, often referred to as 'bars and coins', remains a popular vehicle, while digital gold can be accessed via three key channels: Over-the-Counter (OTC) trading, futures contracts, and Exchange-Traded Funds (ETFs). OTC markets, particularly those under the London Bullion Market Association (LBMA), facilitate institutional transactions, whereas retail investors predominantly access futures and ETFs. 

Approximately 15% of global gold demand is attributed to industrial use. Notably, the technology sector, particularly electronics, consumes 80% of gold used in manufacturing, including semiconductors and automotive components (Statista, 2025). 

Price Determinants of Gold 

The primary price determinant of gold comes from the demand from investment. As mentioned above, gold is a tool used by central banks to hedge against economic volatility such inflation or overall risk.  This leads gold price to hold an inverse relationship with most asset types like currency as well as monetary policies. For example, higher interest rates used to combat inflation would eventually diminish gold prices as the opportunity cost of holding non-yielding assets like gold increases ​(Jones, 2024)​. However, a characteristic of such relationship is gold’s extended time horizon for such long-term hedging effects to show, often up to decade long cycles.  

Hence, an overlooked driver of gold prices in the short to mid-term is the independent investors and their generalised trait of being ‘market chasers’. This translates into the trend of rapid rise and gradual decline’ we see in gold prices as investors buy into already ‘running’ positions in hopes of creating wealth through daily trade​ (McKee, 2021)​. Corresponding to the market noise, short-term gold prices fluctuate above expectations, with the historical change in yearly prices averaging 19.4% over the past half century​ (GoldPrice, 2025)​.  

Recent Price Rally & Market Trends 

As of April 2025, gold prices have reached unprecedented levels, with the LBMA gold price surpassing US$3,200 per ounce; a trend that started in 2024, attributable to a confluence of factors that have heightened investor interest in the precious metal.​ Although market prices are always a mixture of reasonings, the initial rally can be pinpointed to the headwind in central bank purchases and the rising concern in global election wave and geopolitical tension.  

Indeed, such concerns came in 2025, after the Trump administration went into its second presidency term. The erratic and market-shaking tariffs have escalated since its introduction and global stock markets have taken aggressive downturn as uncertainty hikes. The loss in confidence in the U.S. economy has sparked a desire for the central banks to diversify reserves and reduce reliance on the US dollar, leading to a fall of 7% since Trump’s inauguration. Correspondingly, gold’s price has seen the largest surge since 1986, up almost 20% YTD, as investors look for a risk haven to shelter their portfolio. Alongside the commodity price, gold-backed ETFs and futures both take a bullish position as new fund managers like L1 Capital look to capitalise on gold’s steep climb​ (Gluyas, 2025)​.    

Considerations of Gold Investment 

Although there seems to be no downside risk to investing in gold, an investor should still carefully consider their time horizon, risk appetite and other considerations summarised in the table below:  

Key Characteristics of Gold
Correlation	Gold has historically exhibited a negative correlation with many traditional asset classes, including currencies and equities. This tendency reflects its use during periods of economic uncertainty, where its performance often diverges from mainstream financial instruments.
Liquidity	With an average daily trading volume of US$233.29bn ​(World Gold Council, 2025)​, gold is considered a highly liquid asset. This level of market activity allows for relatively seamless entry and exit, which can be a valuable consideration in volatile markets.
Volatility	Gold's price can fluctuate significantly over short and long-term periods. Its average annual price change has exceeded that of the S&P 500 over the past five decades, while its return profile has not always matched that volatility ​ (Lin, 2024)​. These movements are influenced by a range of global factors, including interest rates, geopolitical developments, and investor sentiment.
Quantification difficulty	Due to the broad array of factors influencing its price—from macroeconomic policy to speculative behaviour—gold can be difficult to value or forecast with precision. Unlike equities or bonds, gold lacks a cash flow or yield metric, adding a layer of complexity for analysts and investors alike.
Long time horizon	Gold tends to follow long-term pricing cycles and may involve higher initial transaction costs, particularly for physical holdings, which can range from 5–20%. As such, any return outcomes are typically realised over a longer investment horizon.

Overall, gold's enduring appeal lies in its dual identity as both a tangible asset and a strategic hedge. Amid a climate of inflationary pressures, geopolitical uncertainty, and shifting monetary policy, the recent surge in gold prices reflects not just temporary market sentiment, but deeper structural anxieties within the global financial system. While it certainly has characteristics well-preferred by investors globally, gold is not without its drawbacks—from volatility to the challenges of quantifying future returns. Ultimately, gold remains a compelling, though nuanced, investment that has taken a great bullish position in 2025.  

​​References 

​​Gluyas, A. (2025, April 14). Gold could hit $US4500 as confidence in US havens crumbles. Retrieved from Australian Financial Review: https://www.afr.com/markets/commodities/gold-could-hit-us4500-as-confidence-in-us-havens-crumbles-20250414-p5lrhd 

​GoldPrice. (2025, April). View Historical Gold Prices at the No. 1 Gold Price Site. Retrieved from GoldPrice: https://goldprice.org/gold-price-history.html 

​Jaganmohan, M. (2025). Distribution of gold demand worldwide in 2024, by sector. https://www.statista.com/statistics/299609/gold-demand-by-industry-sector-share/: Statista. 

​Jones, S. (2024, October). Deep Dive - US Dollar and Gold Price. Retrieved from The Royal Mint - The Orginal Maker: https://www.royalmint.com/invest/discover/gold-news/us-dollar-currency-volatility-and-its-effect-on-the-gold-price/ 

​Lin, X. (2024, May). Why the sudden surge? What should you be aware when investing in Gold? Retrieved from YouTube: https://www.youtube.com/watch?v=B4jIyufgy-s&t=1492s 

​McKee, A. J. (2021, June). Chasing Stocks. Retrieved from Doc’s Things and Stuff: https://docmckee.com/finance-stuff/market-investing/section-2/section-2-5/chasing-stocks/ 

​Norwich University. (2023, August). Historical Impact of the California Gold Rush. Retrieved from Norwich University - Online: https://online.norwich.edu/online/about/resource-library/historical-impact-california-gold-rush 

​Reuters. (2023, May). Why Central Banks buy gold. Retrieved from Reuters: https://www.reuters.com/plus/why-central-banks-buy-gold 

​World Gold Council. (2025, February 5). Gold Demand Trends: Full Year 2024. Retrieved from World Gold Council: https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-full-year-2024/supply 

​World Gold Council. (2025, April 8). Trading volumes. Retrieved from World Gold Council: https://www.gold.org/goldhub/data/gold-trading-volumes