What’s Up with Gold?

For the last two years the price of gold has increased by about 145%, making it one of the best performing assets over that period.  Why this 2-year surge in price?

While new gold is being constantly mined, the dramatic increase in price tells us that demand is increasing faster than the supply is increasing.

But First, Ton vs Tonne

A tonne (metric) is defined as 1,000 kilograms, while a ton (imperial/US) is 2000 pounds. Even though the term “ton” is commonly used, gold is always measured in metric tonnes. 

Any usage of “ton” in the context of gold probably really stands for “tonne”.

Equally confusing is that the price of gold is quoted in imperial ounces…

There are 35,274 ounces per tonne of gold.

The Supply of Gold

According to the World Gold Council, approximately 216,000 tons of gold have been mined and exist above ground, primarily in jewelry, bars/coins, and official reserves, while about 132,000 tons remain un-mined underground.

Which means that today’s “market cap” of gold is:

216,000 x 35,274 x $5,000 = $38 trillion

In comparison, the “market cap” of the U.S. stock market is about $69 trillion, while the “market cap” of Bitcoin is about $1.8 trillion.

Roughly 3,000 to 3,500 tons of new gold are mined annually, which suggests that at this rate the supply of gold dries up in 40 years, unless new deposits are discovered, or the mining rate diminishes.

Gold is also recycled, thus completing the picture of the annual increase in the supply of gold. 

Note that this change in supply has been relatively steady for the last decade.

Fun Fact: All mined gold, being nearly indestructible, still exists, forming a small cube roughly 72 feet on each side if melted together.

This above ground gold can be broken down into:

·       45%     Jewelry

·       22%     Bars/Coins held by individuals/entities. Held directly or indirectly via an ETF

·       17%     Central Bank Reserves

·       15%     Industrial

The cost of mining gold is increasing, at a rate much faster than inflation. So, while the higher price of gold will encourage more mining, the higher cost to extract the gold will have the opposite effect.  The difference between the price of gold and the cost to mine gold can expected to be proportional to the mining activity, to the increase in supply.

Conclusion: Supply is not to blame for the recent surge in the price of gold

Meaning that we must focus on demand.

The Demand for Gold

Every year some entities buy gold while others sell.

This graph highlights the buyers of gold over the last decade.

Note the dramatic increase in purchasing by the non-U.S. central banks in 2022, 2023 and 2024 (light purple).  This surge in purchases over these 3 years nicely explains the modest increase in price of gold during that period.

Things changed in 2025.  Perhaps in response to the price increase from 2022 – 2024, there was a tremendous inflow into gold ETF’s during 2025, certainly contributing to the acceleration of the price increase during that time, if not the major contributor.  Will this continue into 2026?

Here is a summary of the major purchasers of gold in 2025:

1.      Global gold backed ETF’s 700-800 tons

2.      All Central Banks (not US) 900-1000 tons

3.      Tether                          50-100 tons

4.      National Bank of Poland 80-100 tons

So while the purchasing of gold by the central banks in 2025 tapered off from 2024, the gold-backed ETF’s picked up the slack.  Guess we will have to wait to see what the central banks do in 2026.

Here are the leading buyers of gold in 2025, excluding retail:

Poland has a stated goal as to the amount of gold it plans to purchase, so this will eventually taper off, whereas the amount Tether may purchase is the future could continue to grow.  More on that later.

A Longer Time View

The two graphs below are roughly aligned by the timeline of the bottom graph.

Even though the price of gold has recently exploded, as seen below gold had been increasing in price since 2004.   An obvious reason being that soon after year 2004, non-U.S. central banks around the world switched from selling gold to buying gold.

Recall that it was in 2007 when the housing bubble popped, resulting in financial challenges and global uncertainty.  This and other global tensions have apparently re-ignited the world’s interest in gold as a safe haven.

Note that the amount of gold the U.S. holds in reserves has not changed.

Less Demand for U.S. Debt?

Are foreign central banks replacing U.S. treasuries with gold?  If so, has this resulted in less demand for U.S. debt?  On the surface, this graph certainly suggests so…

However, it should be noted that the scale is a percentage of value, so as the price of gold has increased dramatically over the last five years, so has its value as a “percentage” of the reserve holdings.

The reality is that foreign central banks today hold more U.S. debt than ever before, as shown in the graph below. At the end of 2024 this debt totaled $8.5 trillion, and by mid-2025 had increased to over $9 trillion.

A further analysis of U.S. treasury yields indicates that the demand for U.S. debt is steady, as indicated by steady interest rates.

I would be remiss if I did not bring up the growing U.S. deficit, best analyzed as a percentage of GDP.  We are clearly going in the wrong direction, and this could very well be a source of financial anxiety… The $9 trillion in dollar denominated debt held by foreign central banks, cementing the dollar as the major global currency, demands that we get our financial house in order.

A Japanese Long-Term Bond Crisis?

Thanks to Japan’s ongoing trade surplus with the U.S., combined with Japan’s historically low interest rates, Japan is the leading foreign holder of U.S. debt, holding about $1.2 trillion worth.  The yield on Japan’s debt instruments are quite low, so their central bank would rather hold the higher yield U.S. debt as a reserve.

There was a very recent rate surge in Japan’s long term debt yields. Investors fear that Japan’s future fiscal policy will increase borrowing, and the Bank of Japan has moved away from massive stimulus and will be buying less debt.

Why is this a concern for the U.S.?

Because if the yields of Japanese debt increases to the levels of the U.S. debt yields, there will be less reason for them to hold onto U.S. treasury debt.  While this drop in demand for U.S. debt could theoretically push up U.S. rates, it has not happened yet.

Higher yields would drive up the cost of servicing the debt, with some believing that the U.S. treasury would print money to “solve” the problem, by devaluing the dollar. 

Thus, a potential reason to buy more gold.

But I do not believe that this action in Japan is the source of the recent gold price surge, as the gold rush started well before these recent Japanese rate surges.

Tether Stablecoin

While Tether has not released its total ownership level, what is known is that they purchased 26 tons of gold in Q3, 2025, and 27 tons in Q4, 2026, so a total of at least 53 tons of gold, more than most central banks.

Why is Tether buying gold?  What is a stable coin, and why is gold needed?

While this 53-ton purchase added some upward price pressure, it was relatively small compared to the gold purchase by the central banks and ETF’s in 2025. No not a whole lot of impact on the price of gold yet.

But that could change moving forward, and this will be explained in my next blog post.