Today's Edition
A.SREENIVASA REDDY (ABU DHABI)
Investment, rather than jewellery, is expected to be the key driver of growth in gold demand during the second half of 2026 as elevated prices continue to weigh on consumers’ purchases of gold ornaments, the World Gold Council (WGC) said in a report.
Jewellery fabrication is expected to remain the weakest component of demand, with high prices prompting consumers to buy fewer and lighter pieces or shift towards products with a greater investment element.
Investment demand is expected to receive increasing support from over-the-counter activity and Asian buying, although a repeat of the exceptionally strong performance recorded in 2025 is unlikely, the WGC report said.
Flows into gold-backed exchange-traded funds (ETFs) in North America and Europe could remain sensitive to real interest rates, expectations for monetary policy and movements in the US dollar. Higher real yields increase the opportunity cost of holding gold, which does not generate interest.
Central banks are expected to remain significant net buyers as they seek to diversify their reserves and protect against inflation, geopolitical instability and financial risks. However, annual central-bank demand is expected to finish below the 2025 level.
Demand for bars and coins is likely to moderate after a strong start to the year, but geopolitical uncertainty, concerns about inflation and the limited availability of attractive alternative investments in some markets should continue to provide support.
Gold use in technology could benefit from continued investment in artificial intelligence-related infrastructure. The WGC report cautioned, however, that demand could weaken if returns on AI spending disappoint or the broader electronics cycle slows.
Gold supply is expected to increase only modestly during the remainder of the year. Elevated prices and healthy margins should support mine production, but operational constraints and the long lead times required to develop projects will limit output growth.
Recycling is also expected to rise only gradually. Expectations of further price increases, the absence of widespread financial distress and limited stocks of gold that are readily available for sale are encouraging consumers to retain their holdings rather than sell them back into the market.
Total gold demand, including OTC and other activity, was unchanged from a year earlier at 1,268.9 tonnes in the second quarter. This took demand during the first half of the year to 2,522 tonnes, an increase of 2% year on year, with its value reaching a record $380 billion.
Mine production increased by 2% year on year to a record second-quarter level of 965.6 tonnes, while recycled gold supply declined by 6% to 326.1 tonnes.
Together, these exceeded total supply because net producer hedging reduced the total by 22.8 tonnes, bringing overall supply to 1,268.9 tonnes.
On the demand side, 310.3 tonnes was used in jewellery fabrication, down 12% year on year.
Consumer jewellery demand fell by 17% to its lowest quarterly level since the pandemic. However, the amount spent on jewellery increased by 14% to $40 billion, reflecting the impact of higher gold prices even as consumers bought less gold by weight.
Technology accounted for 80.4 tonnes of demand, an increase of 2% from a year earlier, supported by gold use in AI-related applications.
Investment demand excluding OTC activity fell by 46% year on year to 262.2 tonnes. Purchases of bars and coins totalled 307.1 tonnes, broadly unchanged from a year earlier but well below the unusually strong 476.8 tonnes recorded in the first quarter.
The bar and coin total was partly offset by net outflows of 44.8 tonnes from gold-backed ETFs. In practical terms, ETF investors collectively sold or redeemed holdings representing more gold than the funds acquired during the quarter.
Central banks and other official institutions made net purchases of 288.9 tonnes, an increase of 62% year on year and a sharp recovery from 56.5 tonnes in the first quarter.
A further 327.1 tonnes was recorded under “OTC and other”. OTC, or over-the-counter, transactions are gold trades negotiated directly between financial institutions, investors and other counterparties rather than conducted through a public exchange. Such transactions are generally less visible than purchases of bars, coins or gold-backed ETFs.
