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

Yet despite this scale, gold remains underinvested, particularly in the West. As Bloomberg reporter Jack Ryan explained, the relatively limited investor exposure to gold in Western markets means that even a modest increase in inflows could translate into a significant surge in price.

Ryan noted that despite roughly $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."

That raises a key question: what happens if genuinely new demand enters the market?

Limited Western Holdings

Western investors tend to favor ETFs over physical gold. Gold-backed funds offer a convenient way to gain exposure to the gold market, though owning ETF shares is not the same as holding physical metal. Still, ETF investment does increase physical gold demand, because funds must acquire more bullion as investment levels rise.

In December, Goldman Sachs analysts found that gold ETFs accounted for just 0.17 percent of private U.S. portfolios—slightly lower than in 2012. According to the Goldman analysts, every 0.1 percent increase in private gold holdings pushes the gold price up by 1.4 percent. By that measure, even a modest gold rush by U.S. investors could cause the price to surge.

The global debasement trade could add to that demand. In a separate study conducted by JPMorgan Chase in May 2025, analysts estimated that shifting just 0.5 percent of foreign investors' U.S. asset holdings into gold could lift prices by roughly 18 percent annually under the market conditions prevailing at that time.

Western investors have historically been ambivalent toward gold. During the early stages of last year's bull run, they largely stayed on the sidelines—a pattern visible in physical demand data.

Chinese buying helped push global gold bar and coin demand to a 12-year high of 1,374.1 tonnes in 2025. In value terms, bar and coin demand reached a record $154 billion. More than half of the year's global coin and bar demand came from just two countries: China and India.

The East-West split is even starker in first-half data. Chinese bar and coin demand grew 44 percent year-on-year in H1 2025, with investors snapping up 115 tonnes of gold bars and coins in the second quarter alone—the strongest first half for physical gold buying since 2013. Meanwhile, Americans continued selling: year-on-year bar and coin sales plummeted 53 percent in the first half, with second-quarter demand of just 9 tonnes, the lowest quarterly level since Q4 2019.

Western investors did not meaningfully join the rally until last fall, and they quickly stepped back when the metal corrected in January.

It is not only retail bar and coin buyers who have been accumulating. Central banks have been persistent net buyers of gold in recent years, with annual purchases running above 1,000 tonnes since 2022 according to World Gold Council data—a sustained level of official-sector demand that has coincided with the metal's rise even as Western portfolio allocations stayed thin.

A Changing Investment Strategy?

The extent of last year's price gains raises the question of how much larger they might have been had Western investors participated from the start.

U.S. money managers have generally steered clients away from gold, favoring the traditional 60/40 portfolio of equities and bonds with little or no gold. The reasons for this mainstream aversion are debated. It may reflect institutional unfamiliarity: in a world focused on fiat money, many advisors do not appreciate gold's centuries-long history as money and its role as a hedge against debasement. Alternatively, investment advisors may simply earn larger brokerage fees from products other than physical gold. Whatever the cause, the conventional paradigm and the bias against gold appear to be shifting.

Last year, Morgan Stanley CIO Michael Wilson proposed a seismic shift in strategy, recommending a 20 percent allocation to gold. Given changing market dynamics, Wilson suggested investors consider a 60/20/20 model, swapping half of the bond allocation for gold to serve as a "more resilient" inflation hedge.

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

Investors appear to have taken notice. According to WisdomTree analysts, "a quiet revolution" is taking shape in investment portfolios because the traditional 60/40 model no longer works. As they wrote:

"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 how significantly underinvested gold remains, a new surge of capital into the market could push prices rapidly higher in the coming months if this strategic shift continues to take hold. What to watch is whether ETF holdings and Western bar and coin demand—the lagging pieces of the market—turn sustainably higher, since those flows are the channel through which new investment competes for available metal.

Source: GoldSeek — Mike Maharrey