Gold has shown impressive growth this year, mainly due to renewed demand for exchange-traded investment funds (ETFs) along with steady purchases by central banks.
According to Deutsche Bank, these two factors have become "aggressive" buyers in the market, shaping price dynamics in addition to traditional drivers.
The influx of funds into ETFs has made this one of the three strongest years of accumulation since the launch of these products. Assets under management (AUM) are now 70% higher than in 2020 in dollar terms, and their impact on prices is more pronounced than in previous cycles.
According to Deutsche Bank analyst Michael Xue, demand for ETFs is having a "50% stronger impact on gold prices" this year compared to the period when investors reduced their positions from 2021 to 2024.
Central banks, meanwhile, continue to add 400-500 tons of gold annually, a trend that the bank describes as largely price-insensitive. This official demand has increased since 2021, even with higher real prices.
The combination of price-neutral central bank purchases and renewed inflows into ETFs helps explain why gold has surpassed model-based expectations.
In contrast, the demand for jewelry retains its historical price elasticity and tends to decrease as prices rise.
Xue notes that an increase in jewelry consumption is more likely when gold is cheaper, which means that a decline in this segment is not necessarily a bearish signal for the market. The demand for bullion and coins is also usually insensitive to price, although fluctuations may occur in some years.
On the supply side, recycled gold usually acts as a brake on price movements, as higher prices stimulate an increase in scrap supply. However, in 2025, the volume of processing was lower than expected.
The annual supply of processed gold for the first half of the year in the amount of 1,392 tons was below the regression trend line, indicating a weaker restraining effect on gold growth.
Statistical analysis complicates the picture. A Granger causality analysis conducted by Deutsche Bank showed that "changes in gold prices cause ETF flows, not the other way around."
When expanded to broader financial conditions, the results showed that Treasury bond yields, rather than the U.S. dollar, are the key variable influencing gold.
"Strangely enough, the test also shows that the US dollar and gold prices both trigger changes in treasury yields," Xue added.
The analyst warns that heavy reliance on ETF flows creates downside risks if these inflows stop or reverse.
Historically, investors have added gold when yields have fallen, making Federal Reserve policy key to the outlook.