On the demand side:
- Industrial demand: the yellow metal is used in electronics, aeronautics, medicine, etc. Gold is highly conductive and corrosion-resistant, making it particularly valuable for certain industrial applications.
- Financial (or investment) demand: here, gold is sought for diversification purposes, for its safe-haven qualities and its (often) negative correlation with other asset classes. This generally involves purchases of paper gold (gold-linked financial instruments, primarily ETFs). However, these purchases can also be supplemented by private purchases of bullion or coins during periods of great financial or geopolitical uncertainty.
- Demand from central banks: their purchases are generally motivated by the desire to diversify their foreign exchange reserves.
- Jewellery: countries like India and China are the main consumers here, for cultural and traditional reasons.
- Industrial demand is the least significant (generally between 5% and 10%) and generally varies little over time. After falling sharply during the pandemic, demand from the jewellery industry has recovered, but remains well below pre-pandemic levels. It is obviously quite price-sensitive.
On the supply side:
- Mining: the main source of supply. ESG constraints and the decision to prioritise the return of capital to their shareholders have meant that gold companies have invested little in exploration in recent years, and there have been no major discoveries of new deposits for some time. As a result, the supply of gold from mining operations is unlikely to rise much in the coming years.
- Recycling: jewellery, electronic waste, dentistry. All the more attractive when gold prices are high.
- Central bank sales.
- Sales by investors.
Since gold is indestructible, it's worth bearing in mind that today's demand is tomorrow's potential supply. Under normal circumstances, the price of gold is essentially determined by investment demand and the actions of central banks.
