When the three pillars of gold move in the same direction, the explosive potential of gold prices is at its greatest...
Spot gold climbed to a record high of 2,942.6perounceduringTuesday′sAsiantradingsession,surpassingthepreviouspeakof2,911.18 set on Monday, marking the eighth time gold has hit a record high since 2025. Since hitting a low of $1,809.50 per ounce on October 23, 2023, gold has risen for 16 consecutive months, with a cumulative increase of 63%.
Gold's rally accelerated after Trump won a second term in November last year, rising 16% from the low of $2,536.71 per ounce on November 15. Investors have turned to gold as a safe-haven asset amid Trump's introduction of various trade tariffs and threats of further tariffs.
In the latest announcement, the U.S. imposed a 25% tariff on aluminum and steel imports, eliminating exemptions for major suppliers such as Canada and Brazil. Trump also threatened to impose a 25% tariff on all imports from Canada and Mexico, while proposing new tariffs on automobiles, computer chips, and pharmaceuticals.
Rising U.S. tariffs and potential retaliatory actions from other countries could weigh on global economic growth, push up inflation, and tighten monetary policy. Investors are responding by buying gold and related exchange-traded funds (ETFs).
Holdings of the world's largest gold ETF, the SPDR Gold Trust, jumped to 27.92 million ounces on February 7, up 1.3% from the recent low of 27.55 million ounces on January 27. While headlines about trade tariffs may be the driving force behind the current price surge, other factors also support gold's bullish outlook.
The Three Pillars of Gold
Over the past two decades, gold prices have been driven by three main factors: consumer demand from China and India, central bank purchases, and investment flows. When these three factors align, gold's gains are the strongest.
According to the World Gold Council (WGC), the most important of the three pillars in recent years has been consumer demand from China and India, which together account for slightly more than half of global consumption. In 2024, China's gold consumption demand was 815.5 tons, down 10% from 2023, while India's demand was 802.8 tons, up 5%. Combined demand from the two largest buyers was 1,618.3 tons, representing 53% of global consumption.
Although China and India still dominate global gold consumption, the growth momentum has slowed in recent years, and the two countries may be transitioning from drivers of gold prices to supporters of demand during price pullbacks. This has made the other two pillars the primary drivers of current gold prices, with lower predictability.
Central bank purchases have been strong over the past three years, with WGC data showing net purchases of 1,044.6 tons in 2024, slightly below 1,050.8 tons in 2023 and 1,082 tons in 2022. This marks the third consecutive year that central bank net purchases have exceeded 1,000 tons, more than double the annual average of 473 tons from 2010 to 2021, highlighting the growing role of central banks in driving gold demand.
However, given that central bank purchases are driven by policy rather than market dynamics, predicting their path is challenging. Nevertheless, Trump's often erratic and contradictory policies may encourage more countries to build financial reserves outside of assets like U.S. Treasuries, potentially keeping central bank demand high in 2025.
The third pillar of gold—investment flows—is partly driven by diversification needs but also by safe-haven flows and hedging against inflation risks. This is where Trump's policies may be most favorable for gold, though it's worth noting that the U.S. president has shown a capacity for flexibility and unpredictability, which could increase gold's volatility this year.
