If you're following global finance, you've probably
felt that dizzying sensation looking at the gold
market lately. We are not talking about small
incremental movements anymore. Not at all. In
the third quarter of 2025, the London Bullion
Market Association price for gold averaged a
staggering $3 ,456 per ounce. That is a truly
remarkable 40 % year -over -year increase. It
just defies decades of conventional market logic.
Right. It's behaving parabolically. And if you
approach it with a traditional playbook of, you
know, supply, demand, interest rate, correlation.
Nothing makes sense. The old market rules, the
very drivers we all used to track daily, have
been completely upended. And that's exactly why
we're here. Our mission today is a deep dive
into the research from powerhouses like Societe
Generale, the World Gold Council, and Deutsche
Bank. We need to unpack why gold is soaring and,
critically, what this tells you about global
economic stability. And the core thesis the sources
reveal, and this is the fundamental part to understand,
is simple. The inelastic demand coming from official
state actors the central banks, has now completely
eclipsed the traditional price -sensitive drivers.
So it's a structural re -engineering of how gold
is priced. Exactly. We're witnessing a structural
re -engineering. OK, so we have to start by accepting
that the old leaders are, well, failing to lead.
Let's look at the drivers that gold used to respond
to, because they are clearly not responsible
for a 40 % price move. We absolutely must set
aside those traditional fundamentals. I mean,
they still exist, of course, but they are fading
and shading rapidly in importance as price setters.
The classic demand sector is naturally jewelry.
Historically, if the gold price spiked, the price
elasticity of jewelry demand meant people just
stopped buying, right? It acted as a natural
market stabilizer. Exactly. Jewelry displays
negative price elasticity, typically around negative
0 .4. Higher prices mean lower volumes demanded
by consumers, especially in Asia. And the data
still shows that. It does. The Q3 2025 data confirms
the standard behavior is still in place. consumption
volume dropped 19 % year over year, falling to
371 tons. That drop aligns perfectly with Sajan's
models, which predicted a 20 to 23 % volume reduction.
Okay, so the consumer is behaving predictably.
But here is the critical twist. The total value
of jewelry consumption actually rose 13 % to
$41 billion. And that value increase confirms
two things for us. One, there isn't some unusual
collapse in the underlying retail market. And
two, the jewelry sector is suffering volume pain
precisely because the price is so high. Which
means? It means it is definitely not the entity
driving the price spike. It's just being pulled
along by a force it can't control. And if jewelry
isn't moving the needle, What about the big institutional
money? I mean, we're talking about exchange -traded
funds, the Western money in Europe and North
America that used to dictate market direction.
Yeah, yes. The sources suggest a significant
reversal there, too. This reversal dynamic is,
I think, one of the most intellectually compelling
shifts. Sudhajan deployed what are called Granger
causality tests. OK, let's pause on that jargon
for a moment. For those of us not in quantitative
finance, what exactly does a Granger causality
test tell us? Why is it important here? It's
a statistical tool, essentially. When we look
at two financial time series, in this case ETF
flows and gold prices, the test determines if
changes in one variable can reliably predict
future changes in the other. And historically
the finding was clear. Big NTF flows would predict
the direction of the gold price. That's right.
But now... Now it's flipped. It's completely
reversed. Now the tests show that gold prices
precede ETF flows. This means that where institutional
funds once led the market, they are now reacting
to momentum that has been set elsewhere. So they're
followers, not leaders. They're just scrambling
to catch up after the price has already moved.
Precisely. And the numbers back that up. Global
ETF elasticity is hovering near zero. So while
Q3 2025 saw this massive 134 percent surge in
inflows, about 222 tons, that surge was purely
an institutional reaction to price momentum already
baked in. What about Chinese ETFs? Well, we should
note that Chinese ETFs show their own volatility,
but that's generally linked more to the unique
domestic gold market integration and local speculation.
It's not really providing global price direction.
The takeaway here is absolute. The old leaders
are either adhering to old dampening price rules
or they are simply reacting to a force they didn't
create. So if traditional investors and price
sensitive shoppers are just reacting to high
prices, we have to pivot to the new engine. Who
is the entity that has the scale, the strategic
imperative, and maybe most importantly, doesn't
care what the dollar price is? The central banks.
We are seeing a historic, absolutely relentless
accumulation spree from the official sector.
This isn't just an uptick. It's a paradigm shift.
It really is. So give us the hard numbers on
this accumulation. In Q3 2025 alone, central
banks net purchased 220 tons. That's a 28 % increase
quarter over quarter. It brings the year to date
total to an astonishing Wix 134 tons. Wow. And
this buying is consistent. Even August, which
is historically a slower month for sovereign
purchases, saw an increase of 19 tons. That is
an immense rate of accumulation, and it's the
key structural change. So, Zirgin data pegs the
elasticity of this official demand at nearly
0 .9 from 2023 to 2025. I mean, that's virtually
perfectly inelastic. And this is where the why
gets incredibly interesting because that high
elasticity doesn't mean they're chasing the price.
It means they are utterly insensitive to the
price. But historically, central banks have been,
let's say, notoriously unreliable buyers. They
often step back when prices soared. What makes
this spree different, according to Deutsche Bank's
analysis? It all comes down to their strategic
objective. Deutsche Bank clearly defines the
concept of inelastic demand here. These institutions
are not working off traditional finite price
sensitive annual budgets where the CFO says we'll
spend five billion on gold this year. So if the
price rises, we buy less. They're targeting tonnage
goals, not dollar value constraints. Precisely.
They are aiming for specific reserve resilience
targets. If they determine that reserve stability
requires, say, 50 more tons of gold, they will
acquire 50 more tons of gold, regardless of whether
the dollar cost is 3000 or 4000. Exactly. And
the sources clarify how they achieve this price
insensitivity. If a sovereign institution is
determined to hit a tonnage target, they are
structurally capable of ignoring the cost in
their own local currency. That's the crux of
it. It is. Deutsche Bank notes that central banks
have the ability to create domestic currency
or monetize reserves as needed to acquire the
metal. Their purchases are linked directly to
strategic goals. repatriation efforts and expanding
domestic vaulting capabilities. They view this
as a hedge against geopolitical risks. Like reserve
freezes and future sanctions. That's it. So this
is less about generating profit and much more
about national risk mitigation. It's a defense
strategy for their reserves, making gold a geopolitical
asset, not just a financial one. And the data
shows who is leading this. It's overwhelmingly
the emerging markets. Absolutely dominating the
purchases. The top list includes China, Poland,
India, Turkey, and Kazakhstan. This is not a
Western trend. It's a diversification movement
centered in the global south. And the intent
to continue is robust. Completely. The WGC survey
backs this up. It found that a staggering 95
percent of central bank respondents anticipate
global reserve expansion. Even more significantly,
43 percent of central banks specifically plan
further increases. And they have a target in
mind. They do. They are aiming for gold to comprise
about 22 % of their total reserves. That 22 %
target signals a profound long -term shift away
from reliance on foreign -held and potentially
vulnerable assets. That is a fascinating metric.
OK, moving on, we have to talk about the groups
that amplify the central bank rally. Because
not everyone is reacting negatively to the price.
Like the jewelry sector. That would be the bars
and coins segment. While the high street consumer
pulls back, the retail investor buying physical
bars and coins displays the complete opposite
of jewelry. Positive elasticity around point
four. Meaning the higher the price goes, the
more confidence they gain. They think the rally
must continue and they pile in. It becomes a
momentum multiplier. In Q3 2025, 316 tons of
bars and coins were demanded, a 17 percent jump
year over year. This pushed total investment
demand to a record 537 tons. This segment ensures
that once the central banks set the upward trend,
the retail investors amplify the velocity of
the move. Yes, preventing any kind of smooth
stabilization. So we have inelastic sovereign
demand setting the floor and direction and momentum
driven retail investors piling on top. But this
rush for physical metal is running headfirst
into structural constraints on the supply side.
It is a fundamental conflict. Global supply only
rose a modest 3 % in Q3 2025, totaling 1 ,313
tons. The lion's share came from mine production,
977 tons, which is inherently slow to grow. It
takes years and, well, billions to bring a new
mine online. And high grade discoveries are getting
scarcer. They really are. This supply constraint
is vital when we discuss how prices are being
set. Analysts are now calling this situation
the death of synthetic gold. That sounds dramatic.
What does that mean for how you, the average
investor, should perceive price discovery? It's
a hugely important concept. For years, the gold
price was primarily set by the paper markets,
futures contracts, derivatives, institutional
ETFs, the so -called synthetic gold. This paper
volume massively overshadowed the physical tons
actually changing hands. So if there was a sudden
sell -off in a major futures market, the paper
price would fall and the physical price would
follow. Right. But the death of synthetic gold
means that the overwhelming volume of physical
tons being removed and vaulted by central banks
and strategic investors is now eclipsing the
influence of those Western paper instruments.
Physical demand is driving the paper price. Not
the other way around. Exactly. And this shift
must introduce massive risk. If emerging markets
continue their planned rebalancing to hit that
22 percent reserve target, that colossal price
and elastic physical demand is going to smash
right into a rigid, constrained output wall.
That is the structural pressure point for the
next few years, which I think brings us logically
to the bigger picture, the context of the evolving
global monetary system, because this demand isn't
random. No, not at all. This entire gold surge
is a direct response to the decline in geopolitical
trust and the weakening of the post -1970s dollar
order. The pillars that have upheld dollar dominance
for 50 years are under significant pressure.
We're talking about three specific pillars. Right.
First, global reliance on the U .S. Treasury
market for safety and liquidity. Second, the
dollar's sheer dominance in global trade and
payments. And third, the reliable availability
of dollar funding liquidity. And all three are
showing signs of fracturing. We're seeing diversification
in payments, surging Treasury issuance due to
ballooning U .S. deficits. But the most acute
trigger you have to think is political risk.
Oh, the specific threats are not theoretical.
Events like the freezing of foreign held reserves
in recent geopolitical conflicts that served
as a giant flashing neon sign to central banks
worldwide saying your foreign assets are political
vulnerabilities and they can be weaponized. That
realization instantly translates to reserve reallocation
towards assets held domestically and free from
external legal jurisdiction like gold. And when
you compare the official rhetoric. The fracture
in global thinking is obvious. Absolutely. Western
officials, including those at the Federal Reserve,
they often maintain the narrative that the dollar
is unassailable. They frame gold accumulation
as a minor volatile price signal. But their European
and crucially emerging market counterparts are
explicitly acknowledging the erosion of trust
in the dollar in their internal policy discussions.
They are acting on the recognition that the monetary
order is fundamentally shifting. That difference
in perspective is vital for you to grasp. The
sustained buying, despite historically high prices,
is driven by a strategic fear, not a speculative
profit motive. When we look at the summary data,
Q3 total demand, hitting a record 100, 313 tons,
valued at $146 billion, That entire propulsion
was generated by strategic forces ignoring price.
So what does this all mean for you, the person
trying to navigate this new gold reality? We
have four demand ecosystems colliding, but the
central banks are now positioned as the pivotal
marginal force. They're overriding the natural
stabilizers in the system. Right. We have the
price sensitive group jewelry, which pulls back
volume. We have the momentum driven group bars
and coins, which pushes volume forward. We have
the reactive group ETFs, which only follows.
But the massive Price in elastic official buying
is the force that dictates the floor and provides
unstoppable momentum. And the WGC and Deutsche
Bank data confirm that these sustained elevated
purchases are continuing even as the price skyrockets.
This indicates that this is not a cyclical bubble
to be popped by a rate hike. No, this is a clear
long term structural shift in global reserve
strategy. And this leaves the most provocative
thought to consider moving forward. Go on. If
central banks have become the marginal buyer
and they are effectively setting the gold price
by creating domestic currency, unconstrained
by price, to hit specific reserve tonnage targets,
what does this ultimately imply for the stability
and traditional reserve role of the dollar in
future global reserve planning? The buyer of
last resort is no longer interested in the old
price rules. And that changes everything.