Report shows ETFs rivalling central banks as the champion of gold demand

Gold’s average price for Q1 soared 38% y/y - which in turn saw the Australian dollar price top an unheard of $A5,000 an ounce. While the price of gold is a construct of many demand and supply factors, this latest bull-run can be explained, in the crudest terms, by the US administration’s dramatic shift on trade and the resulting geopolitical shockwaves.

In a rare market event, we saw investor confidence in US Treasuries – typically a popular alternative to equities – waver in April, along with the US dollar. As investors weigh up the relative stability of equities, bonds and commodities, gold became a TINA (There Is No Alternative) trade, supported by its inherent value characteristics and scarcity that weathers crises.

Since the onset of the pandemic, which saw gold rally after years of relative stability, the price of gold has more than doubled from around $US1,600 at the start of 2020 to a high of $US3,509 in early April, ending the month at around $US3,320.

Chart 1: Gold continues to set successive new records so far in 2025

Chart 2: Gold’s 2025 rally in historic context (as at 31 March 2025) 

This 2025 rally is in fact a long one in the making, initially conceived during hawkish central bank actions aimed at lowering cost pressures. They worked but the economic volatility that has ensued has helped this precious metal overcome the usual negativity of higher rates and a strong US dollar.

More uncertain global trade, tariffs, politics and instability have given gold’s usual role as a haven of security an extra polish for investors of all types – from central banks to retail investors.

A new champion for gold as ‘US exceptionalism’ cracks

The World Gold Council’s Q1 2025 Gold Demand Trends Report found that gold demand rose by 1,206 tonnes, a 1% increase y/y, marking the highest Q1 gain since 2016, all occurring within a record high price environment. Gold surpassed $US3,000/oz, the London price surging 38% in 12 months (y/y) according to data from the London Bullion Market Association or LBMA.

Central banks continued to add gold within the quarterly range of their purchases over the last three years but were overshadowed by a sharp rise in inflows into gold Exchange-Traded Funds that added 226 tonnes of gold at the end of Q1’25.

Gold-backed ETFs witnessed a broad-based revival in Q1 with investors around the world adding to their holdings, with high net worth and institutional investment flows understood to have remained positive. We believe this flow of capital to gold ETFs explains the fall in OTC demand (typically the indicator for institutional investment was down),as well as the relocation of gold stocks across borders and shifting positions on the COMEX.

Gold ETF demand doubles, bar and coin demand solid

The gold ETF revival fuelled a more-than doubling of total investment demand to 552 tonnes, a 170% y/y increase and the highest since Q1 2022. Inflows into ETFs added 226 tonnes in the first quarter as price momentum and tariff policy uncertainty drove investors to the safety of gold.

Bar and coin investment demand remained elevated at 325 tonnes – 15% above the five-year quarterly average. China drove much of this increase, posting its second-highest quarter of retail investment. This likely reflects a lack of rival investment options, with its property market still in a depression, shares weak and the economy mixed.

Chart 3: Gold demand is buoyed by strong Q1 ETF inflows

Recycling surprise

Recycling posted a surprising decline - only a handful of tonnes yet this showed a weaker response to price than it has done in the past. There are a few likely reasons for this: consumers preferring to trade in old gold for new rather than sell; an increase in gold loans, which use gold jewellery as collateral and avoid or defer selling back; and low near-market supply.

Furthermore, an absence of sufficient economic distress may reduce recycling even in response to very strong price gains as consumers hope to sell later at even higher prices,” the council speculated. 

Aussie gold consumption continues to climb

The Q1 2025 Gold Demand Trends Report also showed record investment enthusiasm for gold in Australia. While the country is a big miner - top 3 globally - its investment and jewellery markets are small, reflecting its small population compared with the UK, China, India and Europe. For a long time, Australian demand for ETFs and metal commodities also lagged - but that is changing.

After slow but steady growth in demand for gold as an investment, Australians became active buyers of gold bars and coins, contributing to a 23% increase in local gold consumption during Q1. This strength was tempered only by a modest 10% decline in jewellery demand, reflecting gold’s sharp price rise of 32% in USD terms – or 37% in $A over the quarter

Australian investors continued to add gold ETFs to their portfolios at a healthy pace. Collective holdings went up 12% y/y while total assets under management surged 55% (2.9bn vs 4.5bn) compared to March 2024, thanks to the surging gold price and inflows. Investors added $US255 million, or 2.8 tonnes to gold ETFs, pushing total local assets under management to $US4.5 billion, or 45.3 tonnes, both record highs.

These strong buying trends have continued into April, with Australian investors adding US$76 million or 0.6 tonnes to gold ETFs, pushing them further into record territory, according to our analysis (as at 25 April 2025).

We see this demand as due to the same drivers that pushed demand higher in Q1 - gold’s record-breaking price, extreme global trade uncertainties and their implications for Australia’s economy, stock market volatility, and growing expectations of RBA rate cuts — all of which are providing strong tailwinds for gold investment in Australia,” Fan added.

Outlook / conclusion

Gold continues to benefit from a fragile macroeconomic backdrop, with elevated equity-bond correlations weakening traditional portfolio allocations. Macro-economic shocks caused by shifting tariff dynamics and global trade disruptions have reinforced gold’s role as an uncorrelated asset. Bar and coin demand is expected to remain resilient amid economic uncertainty, while gold-backed ETFs and OTC activity should stay robust. Risks remain, including short-term reversals on market relief, but structural drivers suggest strong foundations that favour continued demand are here to stay.