Summary of Key Points
In the second quarter of 2026, global gold demand remained flat year-on-year at 1,269 tons, but increased by 2% for the first half of the year to 2,522 tons. Gold prices soared to a record high at the beginning of the year before plummeting by more than 26%, and are currently hovering between $4,000 and $4,100 per ounce. Central banks have shown strong interest in purchasing gold (289 tons in the second quarter, a year-on-year increase of 62%), which has become a significant support for demand. China's gold demand decreased by 41% in the second quarter, but still exceeded the ten-year average for the first half of the year. Investment demand accounted for 66% of total demand, and central banks have been increasing their gold holdings for 20 consecutive months. In the future, investment demand will remain the key driver of growth, but the high levels seen in 2025 are unlikely to be repeated. The pace of interest rate hikes by the Federal Reserve (Fed) will influence the direction of gold prices.
Detailed Analysis
1. Global Gold Demand: No Overall Increase, but Uneven Distribution
Global gold demand in the second quarter was the same as last year, with varying performances across different sectors:
- Investment Demand: ETFs (Exchange-Traded Funds) saw significant outflows (a net loss of 45 tons), but over-the-counter (OTC) transactions and purchases by Asians (327 tons in the second quarter) offset these losses, balancing overall investment demand.
- Gold Jewelry Demand: The amount of gold jewelry purchased decreased by 17% (278 tons), but the spending on it increased by 14% ($40 billion) due to high gold prices. Consumers opted for lighter and more affordable jewelry (such as small pendants and fine bracelets) to save money.
- Supply: Gold production increased by 2% (966 tons), but there was less demand for recycled gold (a 6% decrease in recycling activities), indicating that many believe gold prices will continue to rise, so they prefer to hold onto it rather than sell.
2. Wild Gold Price Fluctuations: A Drop of Over 26% from a "Record High"
Gold prices have been extremely volatile this year, with the Fed playing a key role:
- In January, prices reached a record high of $5,595 per ounce due to tensions between the US and Iran and speculation about possible Fed interest rate hikes.
- By June, prices dropped to $3,959 per ounce as tensions eased and expectations of Fed hikes increased.
- Currently, prices are around $4,000, a 26% decrease from the peak.
The future direction of gold prices depends on the Fed's interest rate policy:
- If the Fed delays its first hike until December, gold prices will face less pressure.
- If it raises rates by 25 basis points (0.25%) in both September and December, gold prices may continue to fall because higher interest rates make bank deposits more attractive, reducing demand for gold.
3. Central Banks as the "Major Buyers": Global Gold Demand Surges, with China Increasing Holdings for 20 Consecutive Months
Central banks worldwide purchased 289 tons of gold in the second quarter, a 62% increase from last year:
- The Polish central bank was the most active, buying 51 tons in the second quarter and 82 tons in the first half of the year, becoming the largest official buyer globally.
- The Chinese central bank has been increasing its gold holdings for 20 consecutive months, purchasing 33 tons in the second quarter (the highest since the fourth quarter of 2023) and accumulating a total of 2,346 tons (8% of its foreign exchange reserves).
Central banks buy gold as a means of hedging against economic uncertainties and currency devaluation. Gold serves as a safe asset that can diversify their reserves and provide reassurance to investors.
4. China's Gold Demand: Investment Dominates, with Divergent Trends in Jewelry Sales
China's gold demand decreased by 41% in the second quarter (155 tons), but still exceeded the ten-year average of 518 tons for the first half of the year. The main trends are:
- Investment Demand: Gold bars and coins saw a 31% increase in sales (314 tons, the strongest growth in history). Although ETFs experienced outflows in the second quarter, there was still a net inflow of $40.2 billion in the first half, making China the third-largest investor in gold.
- Gold Jewelry: Jewelry demand declined by 28% (50 tons, the lowest since 2004), but sales amounted to $141.9 billion, showing a split in market preferences. Affordable and lightweight jewelry (such as 3D hard gold items) were very popular, while high-end antique-style gold products also sold well. Mid-range jewelry faced little interest.
- Industry Changes: Many jewelry brands have closed, and factories have reduced production capacity, making it difficult for smaller brands to survive in the market.
5. Future Outlook: Investment Demand Remains Key, but Extreme Market Conditions are Unlikely to Repeat
The World Gold Council predicts:
- Investment demand will continue to drive growth, but the frenzied buying seen in 2025 is unlikely to happen again.
- Asia and OTC markets will be the main drivers of demand, with European and American ETFs possibly fluctuating in their participation.
- China's gold market is expected to be stable with some volatility in the second half of the year. Investment demand will remain strong, but short-term price fluctuations may deter purchases.
- Long-term factors such as geopolitical tensions, low bond yields (low returns on bank deposits), and volatile financial markets will continue to support gold demand as a safe asset.
In summary, gold remains a popular safe-haven asset, but its extreme price movements this year highlight its sensitivity to policy and market sentiment. Investors looking to buy gold should pay attention to the Fed's interest rate decisions and the actions of central banks, avoiding both excessive optimism and panic selling.