Gold continues to demonstrate remarkable strength, with analysts forecasting further gains despite recent volatility linked to tensions in the Middle East.
According to precious metals consultancy Metals Focus, gold is expected to resume its upward trend once geopolitical tensions ease, with the average gold price forecast to rise by 43% this year to a record annual average of US$4,920 per ounce.
Investment Demand Drives the Market
One of the most significant developments in the gold market is the shift in demand patterns. While jewellery consumption and central bank purchases have declined, investment demand for physical gold has surged.
Demand for gold bars and coins has reached its highest level in more than a decade, with physical investment rising by 16% in 2025. For the first time, investment demand is set to overtake jewellery as the largest component of global gold demand.
Metals Focus attributes this trend to growing concerns about global economic stability, rising government debt, uncertainty surrounding US policy, and ongoing geopolitical risks.
Gold Supply Continues to Grow
Global mine production increased by 2% in 2025 to 3,817 tonnes, supported by new mining projects, expansions, and increased artisanal production.
Production is expected to rise again this year, reaching approximately 3,907 tonnes. Growth is anticipated in most mining regions, although output in Oceania and Europe is expected to soften.
Mining costs continue to climb, with all-in sustaining costs increasing by 12% year on year to US$1,552 per ounce, reflecting inflationary pressures, higher royalties, and rising operational expenses.
Central Banks Slow Purchases
Central bank buying remained strong but eased from the extraordinary levels seen over the previous three years.
Net official sector purchases fell by 22% in 2025 to 848 tonnes, the lowest level in four years. Despite the decline, buying remains well above pre-2022 levels as central banks continue diversifying reserves away from traditional holdings.
At the same time, exchange traded funds (ETFs) recorded strong inflows during 2025, adding 803 tonnes of gold, the largest annual increase since 2020.
Jewellery Demand Falls as Prices Rise
Record gold prices have weighed heavily on jewellery demand around the world.
Global jewellery fabrication fell by 19% in 2025 to a five year low of 1,646 tonnes. Consumers increasingly opted for lighter pieces, lower carat jewellery, or alternative metals such as platinum.
Metals Focus expects jewellery demand to weaken further this year as elevated prices continue to discourage traditional buyers.
China Shows Signs of Slowing Demand
Recent market data suggests that Chinese gold demand has softened.
Bullion withdrawals from the Shanghai Gold Exchange fell in May to their lowest level since the Covid lockdown period, indicating weaker physical demand from the world’s largest gold consuming nation.
Analysts point to tighter liquidity conditions after the People’s Bank of China withdrew approximately RMB 1.8 trillion from the financial system over the past three months.
Despite this, economists note that overall liquidity remains relatively ample and that the central bank’s actions are not necessarily signalling a major shift in monetary policy.
Gold prices in Shanghai have recently traded at a small discount to London spot prices, reflecting softer local demand.
ETF Selling Fails to Derail Gold
Gold briefly came under pressure as investors reduced holdings in gold-backed exchange traded funds.
Globally, ETF investors sold approximately US$2.2 billion worth of gold holdings during May, reducing total ETF gold inventories by more than 16 tonnes.
Despite this selling pressure, gold prices recovered strongly and pushed back above US$4,500 per ounce, demonstrating the market’s resilience.
Safe Haven Appeal Remains Strong
Matthew Piggott, Director of Gold and Silver at Metals Focus, believes the key drivers behind gold’s rally remain firmly in place.
Ongoing uncertainty surrounding US fiscal policy, concerns about long term US dollar strength, elevated geopolitical tensions, and historically expensive equity markets continue to support investment demand for precious metals.
While some investors have been disappointed by recent periods of sideways trading, Metals Focus expects gold to establish further all-time highs later this year.
For long term investors, gold’s role as a safe haven asset and portfolio diversifier remains as relevant today as ever.
Disclaimer: FirstGold does not provide financial or investment advice. This article is for general information only. Investors should conduct their own research and seek independent professional advice before making any investment decisions. It is always valuable to understand the views of market analysts and participants, but every investor’s circumstances and objectives are different.
