Understanding Gold Market and Its Price Volatility

By: Ahmed Abu-Hajar, Ph.D. 

 PDF Version ->>  

(March 2026)  

During the month of January 2026, the price of gold rocketed from $4300 to $5,500, roughly a 30% increase in one month. Then the gold price sharply fell to $4,400 within a week of its high. This unprecedented price volatility is moved by many factors that savvy investors need to be aware of. This article demystifies hidden forces that are behind gold price volatility. Those forces go beyond the power of central banks, investments and the supply-demand dynamics. The recent US-Israel Iran war has proved the hypothesis presented in this article as the price of gold continue to drop during the war, another unprecedented and irrational move. This article serves investors and readers the opportunity to grasp the forces that influence gold prices, and it shows natural, as well as manufactured, invisible hand that causes gold market dynamics. 

This article starts with explaining the gold market segments (jewelry, investment, central banks and industrial use) that define the gold global demands, and it explains the resources and global mining companies that supply gold demands. Then, it explains the process of setting up global gold prices. The current gold market is set for natural as well as manufactured invisible hand that affects the gold prices. The manufactured invisible hand is based on the author hypothesis and explains how the gold prices are set to control economies due to geopolitics. This hypothesis is tested to be true during the US-Israel Iran ware. Where the gold prices is dropping while cutting oil supplies may trigger global recission and war overspending may trigger inflation and increase US budget deficit. Savvy investors and readers with a good understanding of the gold market may jump to the analysis section where the dynamics of the current gold market and trends are presented. Other readers who would like to have a good grasp of the gold market, this article would serve as an excellent starting point, which will lead to the author prospectives and analysis on the current gold market. 

For investors who would use this article to make financial decisions. Please refer to the legal disclaimer section at the end of this article. 

Gold as a monetary currency has been around for over 5000 years. All ancient civilizations including Egyptians, Mesopotamians, Greeks, and Romans used gold, and silver, as mean to do trades and exchange goods. Gold was the perfect currency for most of human history because of its scarcity, divisibility, durability, and resistance to corrosion. Empires used gold for millenniums to fund their armies, collect taxes, and settle international trade. Initially, ancient Egyptians and Romans harvested gold from easily accessible riverbeds deposits. But later, it was expanded into more sophisticated mining techniques. Gold was recognized to be scarce, and empires also accumulated gold reserves mostly through military conquest. Gold extraction declined during the medieval era and only saw a significant increase after the discovery of the Americas. Because of the technological advancements after the second world war, two-thirds of the ever-mined gold was extracted after 1950 according to the World Gold Council (WGC). Through human history, approximately 216,256 Ton (SI metric Ton) of gold has been extracted already. This is roughly 80% of all extracted and unharvest gold. The remaining 20% of unmined underground gold is estimated to be around 54,770 Ton. The total extracted gold through human history remains preserved. 

The gold market is distributed into four market categories that are jewelry, investments, central banks and industrial use. Roughly 45% (97,149 Ton) of all extracted gold is treasured for jewelry, where 23% (48,634 Ton) is bullion stored for investments either as gold backed ETFs, bars or coins. The central banks own 17% (37,775 Ton) as a gold reserve to support national currencies and act and a financial buffer. The remaining 15% (32,727 Tons) is apportioned for industrial use, mostly dentistry and electronic components such as ICs, CPUs, smart phones, and electric connectors. (Fig.1)

 It is worth noting that the total harvest gold is considered a long-term asset. Such that the total amount of gold that is held roughly constant by each of the market segments, refer to Fig. 1. The jewelry market segment, mostly owned by individuals, holds approximately 45% of all harvested gold. Most people hold jewelry gold for decades and centuries, often passing ownership through generations. Only small amounts of jewelry gold are recycled and resold on the market.

The investment market segment is the second largest holding of gold, with 23% of all harvested gold is held as long-term assets. Investment gold is stored as a bullion bars and coins, usually for long periods of time. Small percentage of the total investment gold is allocated to gold-backed ETFs. Gold-backed ETFs are the easiest and the quickest way to trade gold on the stock exchange markets (for example tickets such as GLD and GLDIX are traded on the Nasdaq). 

Central banks are the third market segment, owning 17% of total harvested gold. Central banks keep gold as a long-term asset, in which the amount of gold is roughly held constant. Only sparse numbers of central banks are forced to sell their gold reserves, usually to back-up their national currency or fiscal turmoil. Thus, small fraction of central banks gold becomes available for trading. The same can be said about the industrial use market segment, holding 15% of all harvested gold. 

To understand how gold is priced, it is essential to explain the global gold supplies and global gold demands. In the following, we will explain in more detail the gold supplies and demands as well as their effects gold pricing.  

Only small portion of total existing gold is traded. The total newly added gold supply is usually limited (~5000 ton in 2025). The scarcity of gold is the limiting factor of gold supplies, which sets the price to meet the gold demands. Gold supplies have two main sources, gold mining and gold recycling. According to World Gold Council (WGC), gold mining contributed to 3,671 tons in 2025, a 1% increase from 2024. Where recycled gold contributed to 1,404 tons in 2025, a 3% increase from 2024. The recycling increase is triggered by higher prices. The higher gold prices incentivized some gold owners to sell (Fig. 2). Fig. 3 reflects the scarcity of gold supplies, as the total gold supply remained constant during the past three years, even with the rapid increase in gold prices.  Mine production accounts for 75% of total gold supplied in 2025, and gold recycling accounted for the remaining 25%, mostly from jewelry.  

A: Gold Mining Production:

Gold mining production has grown from 2,270 Ton in 1992 to ~5,100 Ton at the end of 2025. From which the mind production contributed 3,671.6 ton, a 1% increase from 2024, and a total of 1,404 ton is generated from Recycled gold, a 3% increase from 2024. Mine production accounts for 75% of total supplied gold each year, and the demand shortfall is made up from recycling, mostly from jewelry. Fig. 3 shows the rapid increase in gold prices while total production remained constant. Gold mining is a global industry with increasing geographical dispersion than ever before. The amount of gold produced has evenly split along regional lines, far from the concentrated supply of four decades ago when South Africa produced most of the world’s gold. Fig. 4 illustrates the division of gold mining production for six major regions, North America, South and central America, Africa, Europe, Aisa, Oceania Australia, Papua New Guinea, New Zealand) and independent states (Russia, Uzbekistan, Kazakhstan, Kyrgyzstan). The top gold mining countries are China, Russia.   

Fig. 5 illustrates the amount of gold mining production for the top five countries, the top 20 countries and the total production. Roughly 35% of the annual gold mining is harvested by the top five countries, another 45% by the remaining top 20 countries, totaling ~75% and ~25% is harvested by all other countries. The top gold mining countries are China, Russia, Australia, Canada and the US. Fig. 6 illustrates the annual gold mining production of the top 5 countries by ton. 

Gold mining is a complex process that balances massive physical operations with large cap finances.  To harvest gold from mines and transforming it from ore to bullion involves several stages: 

1. Extraction: Ore is removed from the earth using either large-scale open-pit methods for surface deposits or underground shafts for deeper higher-grade veins.

2. Processing: The ore is transported to a mill where it is crushed and ground into a fine powder.

3. Chemical Leaching: This powder is treated with chemicals, typically a cyanide solution, to dissolve the gold and separate it from waste rock.

4. Smelting: The recovered gold is melted into unrefined alloys typically containing 60-90% gold.

5. Refining: These bars are sent to external refineries to reach investment-grade purity of 99.5% or higher.

The industry is led by three major producers, all of which are primary components of the VanEck Gold Miners ETF (GDX) which are Newmont Corporation (NEM) that is expecting to produce 5.3 million ounces in 2026, Agnico Eagle Mines Limited (AEM) with highier operational efficiency, and Barrick Gold Corporation (B) which Operates high-quality assets through multiple joint venture in Nevada and the Kibali mine in the Democratic Republic of Congo. 

B- Gold Recycling: The recycled gold supply is considered constant by most analysts. Where in 2025, there was only 3% increase of the recycled gold from its previous year, despite the 63% increase in gold prices. Recycled gold comes from two main gold market segments, the jewelry segment and gold industrial segment. At the consumer level, fewer jewelry owner felt pressured to sell gold due to economic stability especially in China and India, where most jewelry gold is held. Also, the rapid increase in gold prices has created a bullish sentiment among gold owners encouraging owners to hold to their gold for higher speculative gains.  In addition, gold owners have been using gold as a collateral for loans which makes owners hold to their gold. The recycling of electronic waste (e-waste) from smartphones and servers became a significant strategic focus in 2025. This is increasingly viewed as a sustainable alternative to traditional mining, with major brands like Pandora Group located in Denmark (CSE: Pandora) with globally located recycling centers, and it is reaching the goal of using 100% recycled gold by 2025. It is worth noting to recognize regional trends in recycling gold, where north America held the largest recycling market in 2025 with 40.3% of total recycling market, supported by e-waste infrastructure and high consumer electronics consumption. China remains a major contributor to recycling volumes due to retailers are clearing old stocks of jewelry and replacing them with lighter more affordable artifacts. India is diverging from the global recycling trends with a decline as gold-backed loans is increasingly reducing incentives to sell jewelry for recycling. recycle gold.

The annual global gold demand exceeded 5,000 Ton for the first time in 2025, including investment activities on the OTC market. The high demand was combined with 53 new price records reaching unprecedented value of $555B and +45% year-over-year. The global gold-demand market is segmented into four categories: The jewelry market, central banks, investments, and industrial use (mostly in electronic components, connectors and dentistry). The table on the left illustrates a summary of 2024/2025 global gold demands broken-down by each of the market segments.  In the following, we will demystify each market segment and will try to illustrate hidden undercurrent forces that affect the global gold demand.

A: The Jewelry Market Demands

The jewelry market is probably the most obvious and easy to understand. Gold as jewelry is culturally dependent. In some cultures, jewelry gold is associated with wealth that passes through generations, while in other cultures gold reflects affection and is exchanged as gifts. Also, in some cultures, bulky jewelry gold is preferred as it reflects affluence. But in others smaller size aesthetic jewelry is preferred as it reflects elegance and fashion. 

Despite the soaring high prices, the overall consumer sentiment toward gold remains positive. While the affordability prices added constraints on consumers and the global demands by volume has dropped 19% from 2,026 tons in 2024 to 1,638 tons in 2025, but the total consumer spending in total US dollars has globally increased by 18%, climbing to a record high of $128B in 2025. 

Compared to the rest of the world, China and India have the highest volume drop in 2025. China’s y/y jewelry volume consumption has dropped 25% from 479.1 ton in 2024 to 360.1 ton in 2025. Yet China’s collective annual spending on gold jewelry increased by 8%, reaching $39B in 2025. The new Chinese value added tax (VAT) policy increased the burden on gold jewelry sales by discouraging consumers from buying jewelry and prompting a shift towards gold investment. Young Chinese consumers favored more affordable light weight hard pure gold jewelry. Where high-ticket chunky heritage gold pieces are being sold through boutique stores, thus providing evidence of resilience at the top-end of the market.  It is anticipated that affordability will continue to be a major constraint in 2026, and the external economic pressure as well as domestic uncertainties on China’s economic outlook may weigh on consumer gold demand on jewelry in China. 

India’s sentiment towards gold jewelry remained very strong in 2025. Typical Indian consumers have fixed budgets for jewelry spending, which impacted the gold demanded quantity in 2025.  Despite a slight demand increase in 14 karat jewelry among younger demographic, high karat gold remains popular because it holds its capital value on the long-term. Jewelry exchange remains a key trend in India, as well as the monetization of gold jewelry. Indian banks backing retail loans on gold jewelry has increased by 125% y/y reaching $40B in 2025. 

The Middle East jewelry gold market wasin line with the global trend, a decline in volume demand met with higher value spending. The VAT in Saudi Arabia and UAE aggregated with recoded high prices impacted the jewelry demands. Demand in Iran was resilient with only 1% lower in 2025 than the previous year, as Iranian consumers considered gold safe-haven against geopolitical tensions, especially the US-Israel-Iran war in 2025 & 2026.

The US jewelry market was also in line with the global trend. The consumption was impacted by higher prices. But the decline in volumed demands was met by a 28% increase in total spending to $13B in 2025. The K-shaped economy appeared to hold healthy demand for premium high-carat, high-end jewelry, with affordability constraint is less of an issue among the higher disposable income segment of the market. 

Europe’s gold jewelry demand has registered third consecutive annual volume decline in 2025, in contrast to the increase in value spending for five consecutive years, and reaching a record of $7B in 2025. Australian gold jewelry volumes registered a 22% decline in 2025. Value increased by 11% but fell short of the 2023 annual level.

B: Gold Investments Demands

Investing in gold is a classic strategy for hedging wealth against inflation and market volatility. One of the biggest disadvantages of investing in gold is that its volume does not increase overtime, but the gold value does according to the supply-demand agreeable price. Because gold doesn't pay dividends or interest, investors entirely focus on the methods of ownership and the costs of storage. Investing in gold is exercised through one of three methods: 

1- Investing in physical gold bars and coins:  Here, the investor purchases gold from reputable bullion dealers, local coin shops, and designated local banks. The gold can be stored at home, or in a bank safe deposit box or in a high security facility like Brinks, which will offer “allocated” storage with your gold bar. When purchasing physical gold bars, investors pay a percentage, the premium, over the spot price. The premium goes as a profit to the dealer and minting costs. In addition, investors may select to pay insurance and storage fees.

2- Investing in Gold-backed ETF on the exchange stock market: The investor buys shares that represent ownership to the value of gold held in private vault. The physical bars are held in massive underground vaults, often in London or New York. The investor does not have a right to the physical gold, but the investor owns a claim to its value. The investors buy and sell gold ETFs similar to buying and selling regular shares through brokers such as Schwab, fidelity, and others. The ETF management charges annual management fees in addition to the broker commission. 

3- Investing in vaulted gold: This is where large-scale vaulted gold investments are taken place, usually executed by institutions and high net-worth individuals (HNWI). Vaulted gold investment uses London Good Delivery bars and follows very strict requirements. To remain as Good Delivery, the bars must stay within the secure vaulting network of accredited bullion banks. If a bar is removed from this system, it loses its Good Delivery status and it must be re-assayed before it can be sold at wholesale prices again. This guarantees the Chain of Integrity legal title. While London and New York remain dominant, Singapore, Zurich, and Dubai are the leading global hubs for private institutional vaulting due to political neutrality and favorable tax structures. Large investors often split their holdings across multiple jurisdictions to mitigate "country risk."

Institutional investors (hedge funds, central banks, and sovereign wealth funds) trade directly with Bullion Banks. Bullion banks are specialized departments within designated major global banks such as JPMorgan Chase, HSBC, UBS and ICBC Standard Bank. These banks act as "market makers," quoting continuous buy and sell prices for large quantities. Those institutions also lease gold to jewelers or miners, who pay interest in the form of more gold. The Loco London Bullion Market Association (LBMA) is the de facto global authority where the trades are settled through the physical delivery of bars within the London vault system.  London vaults (including the Bank of England) hold hundreds of thousands of bars, serving as the "clearinghouse" for global institutional gold. It designates where the gold is physically stored and where the legal delivery occurs. Other global loco gold markets exist such as Loco Zurich, Switzerland, which is the world’s refining capital. Trades often involve 1kg bars and it is preferred for private wealth because of privacy policies. The Loco Hong Kong is the primary gateway to the Chinese market, the world's largest consumer. The Loco Singapore is growing rapidly in 2026 as a alternative to Western hubs. Singapore offers tax-free investment-grade gold and has built massive vaults. Finally, Loco New York (COMEX) is primarily a futures market. While most trades are settled in cash, "Loco New York" delivery involves specific warrants for gold held in COMEX-approved vaults in the NYC area.

Institutional channels offer two distinct ways to hold gold accounts for investors: Allocated accounts and Unallocated accounts. In the Allocated account, the bank acts as a custodian, and the bank gives the investor the outright legal ownership of specific and uniquely numbered bars. These bars are held in the investor’s name and are not assets of the bank or vaulting company. The Unallocated account, on the other hand, the gold is part of the bank assets where the investor has a claim against the bank pool. The Allocated accounts are suitable for long-term investors and central banks who pay storage fees, where the Unallocated accounts are more suited for investors who are looking for easier liquidity. 

The demands for gold investments in 2025 was 2,175 Ton, 84% increase from 1,185 Ton in 2024. The majority of the investment demand increase was allocated to gold ETFs, with 801 Ton. This is a 36% of the total demand, where gold ETF demand was -2.9 Ton (supplied 2.9 Ton) in 2024. The 801 Ton ETFs increase totals 16% in the 5002 Ton global gold demand.  

C- Central Banks Gold Market Segment:

Central banks are independent public institutions that serve as the bank for the governments and other banks; thus, central banks do not serve the public. The central bank of a given country is responsible for managing the country’s currency and the monetary system by focusing on macroeconomic stability. Central banks are responsible for maintaining price stability by adjusting the interest rates to control inflation, typically by targeting 2% inflation.  In addition, central banks provide emergency liquidity to commercial banks during financial crises to prevent systemic collapse. Thus, central banks regulate and monitor private financial institutions to ensure that commercial banks follow risk management standards and remain solvent. 

Furthermore, central banks manage national holding of foreign currencies, such as USD, euro, Japanese Yen and gold, to stabilize exchange rates and ensure international payments. The foreign currency management is guided by three primary objectives: liquidity, safety, and returns. The portfolio of central banks is typically divided into two major trenches. A short-term liquidity trench that provides highly liquid assets such as cash or Treasury bills for immediate market need, and a long-term investment trench such as government bonds or corporate securities that are intended to generate higher returns once liquidity is needed.  

Central banks directly buy or sell foreign currencies in the Foreign Exchange market (FX market) to manage the value of their own currencies, hence preventing their domestic economies from collapsing. The FX market is the global, decentralized marketplace for buying and selling currencies, with a daily volume exceeding $7.5 trillion. It is the world's most liquid financial market, operating 24 hours a day, five days a week, allowing banks, businesses, and traders to speculate on or hedge against currency fluctuations. Investors may invest in the foreign exchange market through reputable brokers such as forex.com. When the domestic currency is depreciated, the central bank may sell foreign reserves to buy its own domestic currency. Thus increases its demand to counter the currency depreciation. On the other hand, the central bank buys foreign assets with their own currency to weaken its value and keep exports competitive.

Central banks purchase gold as a long-term asset to hedge against economic and geopolitical risks. Gold is used also as strategic independence against unpredicted geopolitical turmoil. Central banks aim to reduce the concentration of risk by moving away from over-reliance on the USD by adding more gold to their reserves. In 2026, the global value of central banks gold reserves surpassed the U.S. Treasuries for the first time in 30 years (since 1996).  Unlike Treasury notes, gold is physically held domestically and cannot be blocked by foreign governments or sanctions. Hence, gold is becoming sovereign financial asset that is replacing a weaponized USD for geopolitical reasons. In addition, central banks are using gold as hedge against inflation, as gold preserves a long-term stored value against fiat currencies that are devalued by persistent inflation and aggressive monetary expansion.

In 2025, central bank buying reached 863 tons and analysts project continued strong demand through 2026 as institutions seek to diversify away from the U.S. dollar.

D- Gold Industrial Use Market Segment:

Only