Everyone wants gold. How much gold everyone wants, however, is a more complicated question.

Gold demand is the total number of ounces that industries, jewelers, investors, and central banks require for their purposes. The amount of gold needed changes from year to year, and it’s important to recognize the economic and cultural factors that cause those shifts.

So, let’s talk about gold demand in detail. We’ll go through how gold’s demand is measured, the different groups that use gold, and how demand for gold can change.

How Gold Demand Is Measured

The demand for gold is measured by the number of metric tons that consumers purchase over the course of the year. Top consumers of gold include investment-minded customers, such as central banks and individual investors, and jewelry artisans and industries that use gold’s elemental properties.

Organizations like the World Gold Council produce annual reports that detail how the demand for gold has waxed and waned over the years. These groups compile information from key jewelry, investment, technology, and government organizations to derive their aggregate estimates of global gold demand.

To clarify, the figures reported are not static numbers. The demand for gold is always on the move, regardless of the time of year. These figures are often revised as new data become available.

Jewelry Demand

Even though gold is making waves in the news as an investment these days, the reality is that the largest chunk of demand for gold remains in the same place it always has – in jewelry. The signature flash and gleam of gold continues to captivate women and men who wish to bear physical symbols of wealth on their person.

For thousands of years, families and loved ones have used gold jewelry to celebrate momentous events such as weddings, to commemorate important cultural traditions, and to award outstanding achievements in particular fields.

That’s not to say that there haven’t been years when jewelry has ceded its top position to other types of gold demand. In fact, jewelry’s common role as a luxury good places it in a less favorable position during economic downturns than other areas with high demand for gold.

Investment Demand

When economic times go bad, investing in gold starts to look better and better to many. Because gold is tangible and scarce, many investors regard it as a long-term store of value, even though its price can fluctuate in the short term, particularly relative to fiat currencies.

In other words, it’s an actual thing, not just some numbers on a computer file. So, whenever economic downturns rear their ugly heads, expect more people to pile into the market for gold investments.

To be clear, the gold people buy for investment is not rings or necklaces. Instead, they tend to buy gold coins, gold bars, and gold rounds – all tangible blocks of gold to be stored in a secure location.

These days, many people don’t want to deal with the logistical challenge of holding the gold themselves. So, they might select an amount of digital gold products that allow you to own gold without holding it. You purchase the gold remotely, then pay for a custodian to ensure it remains in good care.

Finally, many investors turn to gold-backed ETFs to purchase gold without the physical hassle associated with owning it. An ETF, or exchange-traded fund, allows you to buy shares in a fund that holds physical gold in secure vaults on behalf of its investors. In effect, gold-backed ETFs allow gold investment without the need to hold physical gold.

Why Investors Buy Gold

Portfolio diversification – Most investment professionals would recommend that you have different classes of investments in your portfolio, including precious metals. The thinking is that economic downturns are inevitable but their effects can be mitigated with a well-diversified portfolio.

Inflation hedging: nothing degrades the value of wealth more consistently than inflation. The weakening of the fiat currency erodes the underlying value of all objects or transactions denominated in that currency. Because gold is a tangible store of value, its price often moves in opposition to that of traditional investment vehicles.

Currency risk protection: Furthermore, gold can withstand and persist through any regime or national change that may render fiat currency valueless. So, if there’s any uncertainty about the longevity of a currency, gold can be the way to stand against its demise.

Market uncertainty – Finally, gold serves as a safeguard against most market uncertainty, too. Even if all else fails, gold is expected to provide a backstop for any health the economy seeks to preserve.

Central Bank Demand

Since central banks are usually the issuing authority for fiat currency, it might seem odd that so many of them make a point of buying up large quantities of gold. However, it is common for central banks to purchase hundreds to more than 1,000 metric tons of gold per year.

Why? For many of the same reasons that investors hold gold.

For instance, they may hold gold to diversify their reserves. In addition to the other investment vehicles in the government’s portfolio, gold reserves provide protection to the government from economic downturns and inflation – even if, ironically enough, it’s inflation that the central bank itself created.

Furthermore, the presence of gold in a nation’s reserves can lend credibility to the value of the country’s currency. If there is any concern about its underlying worth, a heap of gold can allay those fears for investors – particularly institutional ones. Gold is, after all, a long-term store of value – even for governments.

Finally, gold held by central banks can help protect governments against potential sanctions. Because gold holds its value so effectively, it can be used to purchase goods even if a country’s official currency is subject to embargoes or other restrictive measures by other nations.

Industrial and Technology Demand

The industrial and technological demand for gold does not approach the same level as does the same demand for silver. However, gold remains a valuable resource across many industries due to its unique physical and chemical properties.

For one thing, gold is the most ductile metal. In other words, because pure gold is such a soft material, it can be stretched into extremely fine wires.

Its ductility, coupled with its excellent, corrosion-resistant electrical conductivity, is highly useful to the electronics industry. Many electronics devices – especially those with small footprints – use gold in their circuitry.

Gold is also in high demand among manufacturers of medical devices and tools due to its corrosion resistance. Because it does not tarnish, it can remain stable in aqueous environments (such as the human body) without degrading or forming unwanted compounds.

Gold may become increasingly important to medicine in the near future. While bulk gold is already known to be inert and bacteria-resistant, early research suggests that gold nanoparticles may have antibacterial and antiviral properties, though this remains an emerging area of study.

So, it is possible that the industrial demand for gold could grow much larger – especially if it proves to be a weapon against MRSA and other illnesses conventional medication struggles to treat.

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