Gold shines helped by strong ETF and central bank demand

[Gold]
Filograph/E+ via Getty Images

Gold (XAUUSD:CUR [https://seekingalpha.com/symbol/XAUUSD:CUR]) has been glittering at the top in the last few months, as it surged to another record high, touching $3,800 an ounce on Monday, helped by strong demand from ETFs and central banks, according to Deutsche Bank Research.

EFTs have made a grand comeback, ranking this year among the top three for gold accumulation since their inception, and ETF demand is now showing 50% greater influence on gold prices compared with the 2021-24 period.

"The fact that ETF demand has re-entered the scene so forcefully means that there are two forms of 'aggressor' bids for gold, from central banks and ETF investors. This helps to explain why gold continues to perform so well versus the model. In our view, the Federal Reserve easing bias should make ETF holdings more likely to rise again than fall in 2026," Deutsche Bank's Michael Hsueh said.

The central banks have been adding 400–500 tonnes annually since 2021.

Other sources of demand are playing more of a muted role. Jewelry purchases remained highly elastic and fell when prices rose. Bar and coin demand tends to be price insensitive but is less decisive, while recycled gold supply is price sensitive and hence a factor that tends to restrain price movements.

"This would explain why we do not see a decrease in jewelry demand as negative for gold prices. If anything, an increase in jewelry demand would likely be negative, in that it would likely have required the incentive of a lower gold price," Hsueh said.

Finally, if ETF accumulation is indeed playing a strong role in gold's rally, then it also stands to reason that it is a downside risk if those flows were to stop or reverse. Investors have typically shown a greater inclination to add ETF gold holdings when U.S. yields are falling, Hsueh added.

Here are some gold and gold miner ETFs: (NYSEARCA:GLD), (IAU [https://seekingalpha.com/symbol/IAU]), (SGOL [https://seekingalpha.com/symbol/SGOL]), (OUNZ [https://seekingalpha.com/symbol/OUNZ]), (BAR [https://seekingalpha.com/symbol/BAR]), (NYSEARCA:GDX [https://seekingalpha.com/symbol/GDX]), (GDXJ [https://seekingalpha.com/symbol/GDXJ]), (NUGT [https://seekingalpha.com/symbol/NUGT]), (RING [https://seekingalpha.com/symbol/RING]), and (DUST [https://seekingalpha.com/symbol/DUST]).

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