Why Gold Demand is at a Record High and Not Slowing Down

by Funding Fool staff

This chart shows the price of gold. See the gold pricing peaks?

Gold prices traditionally coincide with economic weakness, recessions, slow downs in the economy. The economy has slowed down. Interest rates have leveled off for the most part.

The Dow Jones average has been hovering around the 38,000 - 40,000 range. But take a look at what's happening right now.

Gold just hit a historic high, but by most measures in the US, the economy is doing pretty well.

People are saying gold, this is crazy, what's this move? People have called it curious, they've called it stealth, they've called it mysterious.

What's Driving the Gold Prices Up

Here's what's driving this mysterious rally and why new investors are taking the dive into gold. Two of the main ways to invest in gold are ETFs, essentially buying shares of gold and physical gold itself.

ETFs and Physical Gold

In the past, investments have been split between the two. ETFs are typically more accessible to the average person. You can just buy them and sell them just like a share of a stock. Unlike a gold bar, you don't have to store it.

And then when you wanna sell it again, it's just a click of a button. But now, they're being sold off and physical gold is riding high as investors scoop up bars, coins, and jewelry.

Big Demand for Gold

This rising interest in physical gold started with central banks piling up on gold bars. They're taking dollars and selling dollars and buying physical gold and storing it because you can't get to my vault so to speak. 

Their buying nearly doubled after the start of the Ukraine-Russia War as a way to diversify their assets.

The US and some of its allies froze Russian assets, and that's got some countries worried, countries like China, Turkey... the big players.

What they don't want is to see their central bank assets get frozen. Some of these countries, China, for example, hold large amounts of dollar-based assets like US treasuries that the Fed would be able to freeze.

But gold isn't reliant on the US or any other country in the same way.

This is Insane - All Gold Mined in the History of the World

If you took all the gold that was ever mined, you could fit it into a building that's about seven stories high and about 5,000 square feet. That's it.

There's no CEO of gold. Nobody can manipulate it. It has its value just due to its own properties, due to its own rarity. Pretty crazy right?

Central Banks and Individual Investors (Like you and me!)

As central banks ramped up their buying, so did individual investors, especially in countries like China. More retail investors bought gold there than in any other country over the last four years.

Many are young, buying assets like gold beans, small gold balls that are cheaper than buying a full bar.

Younger generations in China, in the US, and in other countries as well, has become more skeptical of traditional financial assets, and so they're grasping for something else.

And while China is the biggest buyer, demand for gold has also increased globally.

A Gallup poll in 2023 showed Americans now prefer gold over stocks as an ideal long-term investment. And one place to look at to see the growing interest is of all places... Costco.

$200 Million of Gold Sold at Cosco per Month

Costco began selling physical gold bars online and in store in 2023. I'm like... oh yeah I'm buying some for sure! 

The bars consistently sell out and customers are spending an estimated 200 million on them per month.

People know Costco, they trust them, and they were eager to buy gold so they feel comfortable. Costco is just a small fraction of the gold buying and selling that's out there in the market right now, but it's very revealing of the interest that regular people have in buying gold.

Golds Changing Trends

All of this has caused gold to spin on its head, bucking decades-long trends.

Remember that gold price chart from earlier showing how it tends to go up during economic downturns or slowdowns?

People buy physical gold in those circumstances because they have something tangible that they can hold on to.

It's not something that's just an image on a screen or a number on an account statement.

But some analysts say that right now people aren't necessarily worried about the current economy, but about its future.

We had COVID in the pandemic and then we had the Ukraine, Russia invading Ukraine, we now have the Middle East War and unrest, we have ballooning government debt, and on top of that, just political discord and international discord.

It's just a very turbulent, uncertain time. And just because the economy is doing well in some places doesn't mean it's doing well everywhere.

Wealth Protection 

For Chinese investors, the interest in gold has been driven by a recent stock market crash and turmoil in the housing market.

Traditionally, Chinese, just like here in the U.S., purchased real estate to store and protect their wealth.

Since the real estate market there collapsed, gold has become an alternative hard asset that people can own to store value.

What Does This Mean for Investors?

So what does all of this mean for investors like me and you? Well, gold can still go up or down at any time, especially because it's often driven by emotion.

But some analysts are bullish on its value, continuing to stay high.

The underlying things that are causing worry and driving people to gold, those don't seem to be going away anytime soon. So by and large, the Street is bullish.