Gold has fascinated humanity for centuries. Kings fought wars over it. Pirates buried it. Central banks hoard it. And let’s be honest—if you found a treasure chest full of gold bars, you wouldn’t complain.
But here’s the big question: Is gold still a smart investment today, or is the hype overblown?
With inflation biting, global tensions rising, and central banks stacking up reserves, gold prices are making headlines again. From China secretly buying up gold to Turkey and Egypt going on a gold shopping spree, something big is happening in the gold market. So, what’s driving this gold rush? And more importantly, should you be paying attention?
1. There are various ways to analyze gold prices, one of which is through supply and demand.
2. Let’s start with supply.
3. In the past, South Africa was the largest gold producer, mining about 1,000 tons annually, accounting for 40% of global gold production.
4. South Africa’s gold mines began to deplete, and from producing over 1,000 tons in the 1970s, production has now decreased to approximately 110 tons, a tenth of its peak.
5. Currently, the world produces about 3,300 tons of gold annually, with China overtaking South Africa as the top producer.
6. The leading gold-producing countries are China (404 tons), Australia (319 tons), Russia (297 tons), the United States (222 tons), and Canada (189 tons).
7. According to the U.S. Geological Survey, the total amount of gold ever mined is approximately 187,000 tons.
8. With annual mining production around 3,300 tons, concerns arise about the longevity of gold reserves.
9. The countries with the largest gold reserves are Australia (9,800 tons), Russia (5,300 tons), and South Africa (6,000 tons).
10. While gold can also be obtained as a byproduct in refining other metals like zinc, and through recycling, new mining faces limitations.
11. This highlights that gold supply isn’t infinite.
12. Now, let’s consider demand.
13. Countries like China and India consume over 50% of the world’s gold production, with Turkey following closely.
14. India’s position might be surprising.
15. In terms of official gold reserves, India ranks 9th, so the government doesn’t hold as much gold compared to other nations.
16. However, Indian households possess a significant amount of gold.
17. While the U.S. government holds about 8,133 tons of gold, Indian households collectively own approximately 24,000 tons.
19. This means Indian households hold more gold than the combined reserves of the U.S., Germany, Italy, France, Russia, China, Switzerland, Japan, and the Netherlands.
20. This affinity for gold is deeply rooted in Hindu traditions.
21. In Hinduism, Lakshmi, the goddess of wealth and prosperity, is associated with gold.
22. Gold symbolizes health and wealth, making it a central element in weddings, where families invest significant sums in gold adornments.
24. In 2016, an event further strengthened Indians’ preference for gold.
25. Prime Minister Narendra Modi implemented a demonetization policy to combat black money.
26. The policy stated that deposits over 250,000 rupees (approximately $4,000) would be scrutinized for tax compliance.
27. Those declaring unaccounted funds had to pay 50% in taxes, with 25% accessible immediately and the remaining 25% after four years without interest.
28. Failure to declare such funds could result in a 99.5% penalty.
29. Individuals holding gold were unaffected by this policy, reinforcing the belief that gold is a secure store of wealth.
30. India’s longstanding love for gold means its demand has been consistent, not a sudden surge.
31. However, Turkey has seen a notable increase in gold demand.
32. Turkey is now the world’s third-largest gold importer, absorbing significant quantities.
33. Severe inflation in Turkey has led citizens to purchase gold as a hedge.
34. While a 5.03% monthly consumer price index increase might not seem extreme,
35. It translates to an annual rate significantly higher than that of the U.S., where monthly inflation is around 0.5%.
36. Egypt has also increased its gold imports recently.
37. In July 2023, the Black Sea Grain Initiative was halted.
38. This agreement, established in July 2022, allowed Ukraine to export grain via the Black Sea.
39. The deal expired in July 2023 when Russia declined to extend it.
40. Egypt, a major importer of Ukrainian grain, was significantly impacted.
41, As the world’s largest wheat consumer, Egypt consumes about 18 million tons annually.
42, Of this, 12 million tons are imported, with 80% coming from Russia and Ukraine.
43. The suspension of the grain deal led to rising food prices in Egypt, fueling inflation.
44. As inflation intensified, Egyptians turned to gold as a hedge against rising prices.
45. Egypt recorded the highest increase in gold purchases globally, with a 55% surge, making it the fastest-growing gold market in terms of demand.
46. Iran followed closely behind in second place for gold demand growth, with a similar motivation—hedging against economic instability.
47. Russia’s invasion of Ukraine further fueled global gold demand.
48. After witnessing how the West froze Russia’s foreign currency reserves, countries with strained relations with the U.S. and Europe started prioritizing gold to avoid similar risks.
49. China is one of the nations accelerating its gold accumulation.
50. China has been systematically increasing its gold reserves through three major policies.
51. These policies include a 1) ban on gold exports, 2) requiring all domestic gold transactions to go through the People’s Bank of China’s trading system, and 3) maintaining a price premium in Shanghai.
52. Although China is the world’s largest gold producer (mining 380–400 tons annually), it prohibits gold exports to keep reserves within the country.
53. Gold transactions within China are strictly controlled and can only be conducted through the People’s Bank of China’s centralized trading system, preventing capital outflows.
54. To attract more gold into the domestic market, China keeps its Shanghai Gold Exchange price higher than international markets, ensuring a steady gold inflow.
55. This price difference, known as the ‘Shanghai Premium,‘ means gold in China trades at an average of $35 per ounce higher than the international price.
56. Due to these policies and aggressive central bank purchases, China now absorbs more than half of the world’s newly mined gold every year.
57. Meanwhile, central banks worldwide have also been actively increasing their gold holdings.
58. A key factor behind this trend is Basel III regulations, which have reshaped the way banks perceive gold as a financial asset.
More on this in Part 2.
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