Gold is underinvested and even a small demand uptick could drive prices substantially higher

The gold market is massive. Global market liquidity averaged $356 billion per day in July. In one particularly busy week earlier this year, over $1 trillion worth of gold changed hands on the London spot market in a single week. 

And yet, gold remains underinvested, especially in the West.

As Bloomberg reporter Jack Ryan explained, given the relatively limited investor exposure to gold in the West, even a modest increase in inflows could mean a big surge in price.

Ryan noted that despite the $300 billion in daily trading activity, "Much of that reflects rapid-fire trading by banks, market makers, algorithmic funds and currency traders, rather than dollars of fresh investment competing for available metal."

So, what happens if new demand enters the market?

We don't have much Gold here

Western investors tend to favor ETFs over physical gold. Gold-backed funds are a convenient way for investors to play the gold market, but owning ETF shares is not the same as holding physical gold.

However, ETF investment does increase physical gold demand, as funds must hold more gold as investment levels increase.

In December, Goldman Sachs analysts found that gold ETFs accounted for just 0.17 percent of private U.S. portfolios. That was slightly lower than in 2012.

Goldman analysts said that for every 0.1 percent increase in private gold holdings, the gold price bumps up by 1.4 percent.

Considering that number, it’s clear that even a modest gold rush by U.S. investors could cause the gold price to surge.

The debasement trade globally could add to that demand.

In a separate study conducted by JPMorgan Chase in May 2025, analysts estimated that moving just 0.5 percent of foreign investors’ U.S. asset holdings into gold could lift prices by about 18 percent annually under prevailing market conditions at that time.

Western investors have been historically ambivalent toward gold. During the early stages of last year's gold bull run, they largely remained on the sidelines. We can see this phenomenon clearly in physical gold demand.

Chinese buying helped push gold bar and coin demand to a 12-year high of 1,374.1 tonnes in 2025. In value terms, global bar and coin demand was a record-breaking $154 billion.

More than half of last year’s global coin and bar demand came from two countries – China and India.

The split between East and West becomes even more stark when looking at the data for the first half of last year.

Chinese bar and coin demand grew by 44 percent year-on-year in H1 ‘25, as investors snapped up 115 tonnes of gold bars and coins in the second quarter alone. It was the strongest H1 for physical gold buying since 2013.

Meanwhile, Americans continued to sell their gold. Year-on-year bar and coin sales plummeted by 53 percent in H1. Demand in the second quarter was only 9 tonnes, the lowest quarterly level since Q4 2019.

Western investors didn't really jump on the bandwagon until last fall, and they quickly fell off again when the yellow metal corrected in January.

Changing investment strategy?

Now imagine the extent of last year's price gains if Western investors had been in the game from day one!

U.S. money managers tend to steer investors away from gold. They focus on a 60-40 portfolio, with a mix of equities and bonds and little to no gold in the mix. One has to wonder why the mainstream tends to spurn gold. Perhaps it is simple institutional ignorance. In a world enamored by fiat money,  many advisors don’t understand gold’s centuries-long performance as money and its role as a hedge against debasement. Or it could just be that investment advisors don’t earn big brokerage fees when clients buy gold. (They should perhaps be sued for malpractice!) Whatever the reason for their disdain, the conventional investment paradigm and the bias against gold appear to be shifting.

Last year, Morgan Stanley CIO Michael Wilson suggested a seismic shift in strategy, recommending a 20 percent allocation to gold.

Given changing market dynamics, Wilson said investors should consider a 60/20/20 model, swapping half of the bond portfolio for gold to serve as a “more resilient” inflation hedge.

Just days later, Sprott director of ETF management, Steven Schoffstall, echoed Wilson on CNBC, saying a 20 percent allocation to gold and silver will likely yield a better return than a traditional portfolio.

It appears investors have heard the message.

According to WisdomTree analysts, “a quiet revolution” is taking shape in investment portfolios because the traditional 60/40 model doesn’t work anymore.

“For decades, the 60/40 mix—60 percent equities, 40 percent bonds—was the shorthand for prudence, diversification, and balance. But the regime that made that formula work—low inflation, stable growth, and negative stock-bond return correlations—appears to have shifted.”

Given that gold is so significantly underinvested, a new surge of capital into the gold market could push the price rapidly higher in the coming months if this shift in investment strategy continues to take hold.