Gold’s outstanding rise overwhelmed the leading global equity indexes in 2024, underscoring its growing value as a safe asset against ever-rising market turbulence. Gold appreciated 26% in 2024, outpacing global equity indices by far, except the S&P 500 and Nasdaq, both of which performed close to gold. It was the US market that performed best in 2024 among global indices, despite having high inflation and high interest rates: gold outperformed on the back of strong central bank purchases and investment demand in the form of bars and coins, while ETFs and jewellery demand displayed negative growth.
Against this background, it is interesting to see how the physical market performed in 2024, as gold is always a favoured asset in Asia, extending to the Middle East and Turkey. Let’s dive deep into China and India to understand the demand landscape, which can roughly be attributed as a proxy for the rest of the physical markets.
A Look at the World’s Largest Physical Markets
Drilling deep into the world’s two largest physical markets for gold, 2024 remained mixed. While the Indian market grew in both the retail investment and jewellery segments, China faltered, resulting in a fall in total physical demand.
China suffered a major drag in jewellery demand, falling 25% on a year-on-year basis. Conversely, retail demand remained robust, growing by 25%, but failed to match the volume loss in jewellery due to the low base. The slowing Chinese economy put a dent in consumer confidence that impacted its behaviour. While the Chinese middle class was famous for heavy-weight jewellery purchases, they have resorted to lightweight jewellery. The rising gold price was also another factor. Investment demand remained robust as a countermeasure against the slowdown caused predominantly by the real estate bubble and low to negative yield in equities and bonds.
Indian demand remained robust despite the country’s consumer spending drifting down due to slower than expected economic growth and, partly, to high inflation. The country’s General Election (which happens every five years) also took place in 2024 and, thus, fiscal spending got disrupted due to ‘model code of conduct’. Further, extreme weather conditions impacted vegetable production, putting pressure on prices. Despite this, Indian consumers showed tremendous faith in gold as an asset, both in jewellery and retail investment. One argument that partly explains the robust demand for gold was the slashing of import duty by the Indian Government in the Union Budget in July. The slashing of duty made gold less expensive, which resulted in a huge rise in consumption in the second half of the year compared to the first half. Continuous beating of Indian equities by the Foreign Portfolio Investors (FPIs) since October, owing to the strong US dollar and rising yield coupled with a slowdown in Indian corporate earnings, pushed domestic investors towards gold.
Drilling deep into the world’s two largest physical markets for gold, 2024 remained mixed. While the Indian market grew in both the retail investment and jewellery segments, China faltered, resulting in a fall in total physical demand.
Moving to 2025
Gold hit a new high in the first month of the new year, bringing much cheer to investors. Spot gold crossed the previous year’s high of $2,787/oz, proving again that a strong dollar is not a deterrent anymore. But, more than this, gold has been in the news for the price disparity between the London OTC market and the CME. More than 500 tonnes of gold were shipped to the US in the last two months. London is not alone – gold is moving from Switzerland as well. The latest Swiss customs data shows that Switzerland shipped 64 tonnes of gold to the US in December 2024. A similar kind of delivery was last observed in 2022, when Switzerland shipped 81 tonnes to the US as the Russia-Ukraine conflict broke out.
The question is, ‘Is this speculation necessary’?
Since the US is not predominantly a large consumption market like Asia, this kind of metal movement indicates that the current exercise is intended to avoid the tariff as the CME runs long-term contracts. Dealers need to safeguard their delivery obligations as higher tariffs will make gold expensive against the rates at which the current contracts are initiated. Some traders also are using the arbitrage opportunity by sending the shipment to the US to cash in the premium.
The question is, ‘Is this speculation necessary’? Our market sources confirm that suppliers are mobilising gold lying in Asian and Middle Eastern vaults to the US to reap the current benefits of high premiums. Normally, gold lying in these vaults is meant to be consumed in the incumbent market. It is interesting to note that both India and China are currently trading at a discount compared to London due to poor demand. When demand is weak in both these countries, it invariably puts pressure on global demand. This artificially created demand around the so-called ‘tariff’ fear has allowed ‘suppliers’ to earn quick money in the short term, and we believe the return of physical demand would act as a catalyst to cut down the premiums to a large extent. We anticipate this to happen sooner rather than later.
The rising price is certainly a cause of concern for the physical market. We expect gold to reach still higher during the year. The jewellery demand in both China and India is going to be impacted as consumers will be moving more towards lightweight jewellery. On the investment side, both China and India are expected to do well. For China, the struggling property sector, low bond yield and tariff war are some of the factors that will continue to produce headwinds in the economy. Gold will be a leveller against these odds. India is expected to grow by at least 6.5%. However, consumption, job creation, inflation and money supply are some of the factors that the government must address. Tax relief in the Union Budget to the tune of an estimated $12 billion is a big push towards consumption growth. Job creation in the private sector would be the next challenge to address. The valuation of Indian equity is also still a bit expensive. Against this backdrop, gold will certainly remain at centre stage among investors. Hybrid funds having gold components are getting traction, while ETFs are gaining in popularity as well.
