World Gold Council: Central banks' gold purchases in Q2 hit a three-year low, ETFs take over to support gold demand

Global demand for gold continues to grow strongly against the backdrop of record-high prices.

The World Gold Council's quarterly report released on Thursday shows that global gold demand in the second quarter increased by 3% year-on-year to 1,249 tons, with its value soaring by 45% to a record $132 billion.

In the second quarter, China's gold ETF inflows reached 46.4 billion yuan, marking the strongest quarterly performance ever. This performance was primarily driven by global trade policy uncertainty, geopolitical turmoil, and rising gold prices, leading investors to flock to this safe-haven asset.

Global gold ETF demand saw significant growth for the second consecutive quarter, becoming an important factor driving overall demand. Investors in gold bars and coins also joined in, attracted by rising prices and the safe-haven properties of gold.

Central banks around the world slowed their gold purchases in the second quarter, with buying volumes hitting the lowest level since 2022. Nevertheless, the World Gold Council believes that geopolitical and economic uncertainties will prompt central banks to continue purchasing gold.

John Reade, senior market strategist at the World Gold Council, stated: “To really be bearish on gold, you have to believe that major geopolitical leaders will suddenly become rational and cooperative. But the world seems too polarized to me.”

Central Bank Gold Purchases Slow but Remain High

The World Gold Council reported that central banks continued to purchase gold in the second quarter, adding 166 tons to global official gold reserves, although the pace has slowed compared to previous periods. The organization noted that the purchase volume is at its lowest level since 2022 but still 41% higher than the quarterly average from 2010 to 2021.

The World Gold Council indicated that higher prices may have suppressed the pace of central bank gold purchases, but due to ongoing economic and geopolitical uncertainties, central bank buying “remains at significantly high levels,” and is expected to continue over the next 12 months.

Philip Diehl, president of US Money Reserve, stated: “I see no reason for central banks to stop buying gold,” and purchases may “extend to more central banks.” He believes that the growing “doubt” about U.S. economic and geopolitical leadership is “undermining” confidence in the dollar.

China Market Leads ETF Inflow Surge

In the second quarter, China's gold ETF inflows reached 46.4 billion yuan (approximately $6.5 billion, 61 tons), similar to the demand for gold bars and coins, with the inflows primarily concentrated in April. In the first half of the year, total inflows into China's gold ETFs reached 63.1 billion yuan (approximately $8.8 billion).

With the combined effect of soaring gold prices, the total assets under management of China's gold ETFs more than doubled in the first half of the year, with a growth rate of 116%, reaching 152.5 billion yuan (approximately $21.3 billion) by the end of June. Total holdings surged by 74% to 200 tons, with both assets under management and total holdings hitting their respective month-end historical highs.

Globally, gold ETF demand in the first half of the year reached its highest level since 2020. Overall investment demand—including ETF, gold bar, and coin purchases—grew by 78% year-on-year According to a previous article from the Wind Trading Platform, JP Morgan believes that the key to the rise in gold prices lies in whether ETF fund inflows can reignite, which requires the Federal Reserve to fulfill interest rate cut expectations and push down U.S. real yields, with deteriorating U.S. employment data being the biggest bullish catalyst. In an optimistic scenario, gold prices will move towards the target price of USD 3,675 per ounce by the end of the year, and are expected to reach USD 4,000 per ounce in early next year.

Record Prices Boost Demand Value

In the second quarter, the LBMA gold price set a new record in June, with an average quarterly price reaching a record USD 3,280.35 per ounce, up 40% year-on-year and 15% quarter-on-quarter. Gold has surpassed the euro to become the second most important reserve asset for central banks.

Despite the record prices, recycling activities remain sluggish. Indian consumers are increasingly opting for trade-ins or using gold as collateral for loans. Jewelry demand and value continue to diverge: tonnage has generally decreased year-on-year, but spending on gold jewelry has seen widespread growth.

Over-the-counter investments and inventory changes contributed to an increase in demand of 170 tons in the second quarter. According to reports, institutional investment remains at a healthy level, and global high-net-worth investors continue to show interest