World Gold Council
Gold demand is diverse
The sources of demand for gold are very different from crypto currencies. Gold has a 7,000-year history as an asset and a long-standing role as money. It is owned by central banks, as well as institutional and retail investors. Yet, it also has a large and diverse attraction as jewellery, which remains the largest source of demand – typically representing between 50% and 60% of annual demand over the past 20 years (Figure 1). Large parts of gold’s demand are deeply embedded within cultural and religious beliefs, especially in India and China. Also, gold is a tangible good, with real technical applications – gold is even used in the computer chips that ‘mine’ bitcoin.
In contrast, bitcoin and other cryptocurrencies are designed to be used as tokens in electronic payment systems. These may have potentially useful characteristics. For now, however, the opportunities to spend bitcoin are rather limited, and genuine transactions are quickly converted into fiat currencies due to Bitcoin’s price volatility.
Gold’s long-standing history
The history of gold goes back to 4000 BC, according to the National Mining Association, when it was used as decorative objects by many cultures in Eastern Europe. In 1500 BC, gold was first used as a medium of exchange by the ancient empire of Egypt. Later on, the Gold Standard system was adopted by all countries, which fixed the value of their respective currencies in terms of a specified amount of gold. However, after the Second World War, the system was abandoned, and a new system called the Bretton Woods system was adopted.
Gold’s increasing demand
Gold’s (GLD) (DGL) (GDX) demand is diverse and widespread among all nations. Its demand ranges from investment to jewelry to technology. Gold’s vibrant yellow color has gained popularity among various cultures as a sign of prosperity, wealth, and good luck. The metal achieved geographic diversity with its use in jewelry.
According to the World Gold Council, jewelry accounts for about 50% of global gold demand. The highest demand for gold jewelry comes from India and China where it’s part of the country’s culture to gift gold during special occasions. It also serves as a store of value. Gold is an excellent conductor of electricity and is thus used in the manufacture of electronic items. It is also used for orthodontic appliances. Gold’s diverse use even extends to the manufacture of computer chips, glass, and aerospace and medical devices. The chart above shows rising gold demand from jewelry, central banks, ETFs, and technology.
On the other hand, bitcoin’s complex mining process, price volatility, and high consumption of energy keep its demand limited.