Gold’s Current Rally: A Three-Phase Demand Expansion
As gold experiences a significant rally, its price strength is underpinned by a sequential expansion of structurally distinct buyer classes: sovereign, institutional, and crypto-native. This multifaceted demand model contrasts sharply with previous gold cycles, where price movements were largely driven by a single dominant category of buyer. The current environment, characterized by diversified buyer interests, has created a robust and sustained demand for gold, creating a favorable backdrop for price appreciation.
Phase 1: The Sovereign Floor (2022–2024)
The foundation of gold’s current rally was laid by central banks, which became the driving force behind demand from 2022 to 2024. For three consecutive years, central banks purchased over 1,000 tonnes of gold annually—a feat that had no modern precedent. The previous record for a single year’s purchases was approximately 610 tonnes in 2013. This unprecedented accumulation established a sovereign demand floor that was not contingent on market-driven capital.
Central banks’ purchases are strategic, driven by long-term portfolio rebalancing and objectives related to de-dollarization rather than short-term price momentum. This behavior explains the durability of the sovereign demand floor; as gold prices rose, central banks continued to buy, demonstrating a demand insensitivity to price fluctuations. In 2025, while purchases moderated to 863 tonnes, they remained above historical averages, with significant undisclosed buying occurring across various jurisdictions, particularly in Eastern Europe.
Phase 2: Western Capital Returns, Yet Remains Under-Allocated (2025–)
The second phase of gold’s demand cycle commenced in 2025, marked by the re-engagement of institutional and retail investors. Global ETF holdings increased by approximately 801 tonnes, contributing to a total gold demand exceeding 5,000 tonnes for the year. Bar and coin demand surged to multi-year highs, indicating that the rally had transitioned from a narrow base to a more robust and widespread phenomenon.
Despite this resurgence, Western portfolios remain significantly under-allocated to gold, with current allocations at just 0.17% of U.S. private financial assets. Historically, this figure has typically ranged between 1–2%. If institutional allocations revert to even the lower end of this historical range, the implied demand could reach several hundred additional tonnes annually. Thus, there is substantial room for expansion within this existing buyer set.
Phase 3: The Rise of Crypto-Native Demand
The emergence of a third demand layer is shaping gold’s landscape within the crypto-native financial infrastructure. Although currently modest in absolute terms compared to the first two phases, this demand introduces innovative mechanisms that did not exist in previous gold cycles. Crypto-native demand is characterized by two main components: stablecoin reserves and tokenized gold.
Stablecoin Reserves: Tether’s USDT, which is backed by a diversified reserve pool, allocates approximately 10% of its reserves to gold. This policy decision allows Tether to operate outside the constraints of U.S. stablecoin legislation, positioning it as a significant near-term buyer in the gold market. Tether’s purchase activity places it among the top institutional gold buyers globally, reflecting a demand that is more responsive to balance-sheet growth than traditional macroeconomic factors.
Tokenized Gold: The market for tokenized gold has reached a value exceeding $6 billion, with around 35–40 tonnes in circulation. This innovative product converts gold from a passive asset into programmable collateral, enabling its use in decentralized finance (DeFi) lending protocols and other digital financial systems. Recent growth in this sector, particularly with products like Paxos Gold and Tether Gold, underscores a paradigm shift in how gold can be utilized within modern financial frameworks.
Implications for Gold Allocation
The current three-phase demand structure for gold has significant implications for future allocations. Each demand layer exhibits distinct characteristics in terms of scale, price sensitivity, and growth trajectory. Central bank demand is expected to moderate as prices remain elevated, while ETF and private demand holds substantial potential for expansion given the current under-allocation. On the other hand, crypto-native demand, while smaller in absolute terms, carries the highest growth rate due to its innovative use cases.
In conclusion, the current rally in gold is not merely a result of macroeconomic factors or traditional investment flows. Instead, it represents a complex interplay of various buyer classes that are expanding demand without displacing prior layers. This diversification of demand is likely to sustain gold’s price strength and create a more resilient market structure in the years to come. As investors and institutions navigate this evolving landscape, the potential for gold to serve as both a hedge and a productive asset will continue to draw attention.
Disclaimer: The information provided herein does not constitute investment advice, financial advice, trading advice, or any other sort of advice, and should not be treated as such. All content set out is for informational purposes only.