After reading my previous article, “Thailand has become the sick man of Asean”, a good friend asked me what would happen to the Thai economy after becoming the sick man?
My reply was that it would be like your body. After getting very sick with no proper and timely treatment, you die. Many economists will offer solutions, but none have credible action plans for getting there, either in terms of time or cost.
Everything is abstract, like efficiency improvements, as if it could be done with a wave of a magic wand. We then changed the subject to something less depressing: gold.
This week, I have decided not to write about the economy, even though the recent release of September economic data has disturbed me. I’m writing about gold and its economic intrinsic or fundamental value. However, I must point out the article is meant to be educational, not for investment purposes.
The title of today’s article, “Why gold matters in a changing world”, will surely catch readers’ eyes as gold prices have been going up and down like a roller coaster. When the price was rising, analysts said it could rise much further. Some even mentioned US$10,000 (324,720 baht) per ounce. But when the price dropped, the same analysts said it could fall further to $2,500 per ounce. Are they professional analysts or con artists who lure investors into buying or selling gold for a commission?
The accuracy of the gold price projection was similar to the case of oil. If one went back to the end of March 2022, expert analysts said the Brent crude price would break $100 per barrel and could reach over $200 per barrel, citing disruptions to Russian oil production. Well, Russian oil output did decline by 3.2% but instead of a price increase, the price has now dropped to $65 per barrel. Would expert analysts make similar mistakes in predicting the price of gold?
Prediction mistakes do not come from the analyst’s naivety, but from overlooking the demand factor. When one makes a price projection, one needs to consider both supply and demand factors. Oil analysts focused solely on the supply factor — ie, the Russian production cut — yet failed to account for future global oil demand. This is economics 101. If demand should fall faster than supply, the price of the product will drop.
This experience could be applied to gold. The maddening rise in gold prices is due solely to demand expectations, but no analyst mentions the supply factor. Gold, like any mineral, can be mined more if the market price is attractive. Apart from new mining, a significant amount of gold supply also comes from “recycled” gold, which means people sell gold from existing stock for profit. In Q3/2025, 42.6% of the gold supply was from “recycled” gold. It is a mistake to think that the gold supply is limited to the underground reserve.
What is the gold supply situation now?
As of the end of 2024, there were 216,265 tonnes of above-ground gold stock. Central banks hold 17% of the stock, 45% is in gold shops/jewellers, and 22% is in the hands of investors. These last two stocks are sources of “recycled” gold. Suppose the current above-ground stock is not enough to satisfy gold buyers’ appetite. In that case, there is an additional 54,800 tonnes of gold readily available for mining and 132,100 tonnes for deeper mining. These two numbers are called “reserves” and “resources”. Each year, about 4,000 tonnes of new gold enter the market.
What is the current gold demand situation?
Current demand is about 5,000 tonnes per year, resulting in a 1,000-tonne demand-supply gap. This demand-supply gap has been pushing gold prices higher and higher. Any good economist will tell readers that, with price upward adjustment, demand will fall and supply will rise, narrowing the demand-supply gap. Or even turns negative, like in the case of oil.
When will the demand-supply gap turn around? This is the $1 trillion question. If I knew that I would be Mr Goldfinger and would not waste time writing articles, but enjoy my enormous wealth and the singing of Shirley Bassey. One thing is always true, though. Gold is the safest asset on this planet. Whenever there is uncertainty, demand for gold never fails to rise.
Economic uncertainty occurred in 2011 amid the threat of a Eurozone debt crisis. Gold demand rose 17.5% pushing the price up 28.2%. Then the fear subsided, and the gold price dropped 30% to the pre-crisis level. The 30% gold price hike happened again in 2022 when Russia invaded Ukraine. The possibility of a larger war triggered investors into rushing to gold.
The uncertainty in the global economy, particularly the stability of the US dollar as the world’s reserve currency, prompted central banks worldwide to increase their gold holdings. The World Uncertainty Index (WUI) consistently rose from a low of 14,606 in June 2024 to a high of 30,376 in December 2024. Gold demand then reached an all-time high of 4,974 tonnes that year, pushing the gold price up by 22.8%.
For curious readers, the WUI peaked at 122,422 in September 2025 and dropped about 10,000 points in October. There seems to be a strong relationship between the WUI and the gold price.
Central banks appear to want to buy more gold in 2025, but not at the pace they did in 2024. It is projected that the gold demand this year will drop slightly to 4,950 tonnes, which is still 1,256 tonnes higher than the projected mining supply of 3,694 tonnes. But does such a gap warrant the 52.7% price rise over the year? If one considers the economic theory of the demand-supply gap, the answer is no. But if one considers the WUI, the answer would be yes.
If the market is reasonable, the price of gold now should be $2,928.5 per ounce. This price is in line with the fundamental gold price calculation by a reputable research house, which estimates the fundamental gold price at $2,800 per ounce.
My goal is neither to convince readers to believe in any specific price projection nor to suggest that readers hold or unload current gold holdings. Please, please read the disclaimer below. My goal is to explain the demand-supply gap factor that affects the economic price and the “panic” factor that affects the market price.
After finishing this article, I realised that the issue of gold price is much bigger than the gold itself. It might be the beginning of a world economic paradigm shift. What if the world is moving away from the flawed “paper” standard and wants to move back to the gold standard? The paradigm shift encourages central banks to hold more gold and fewer US dollars. The National Bank of Poland, currently the world’s top gold buyer, plans to hold gold totalling up to 30% of its reserves.
My next article will then be “From gold to paper, and from paper back to gold?”.
- Disclaimer
- This article is for educational purposes, not for investment purposes. Those who wish to engage in gold buying/selling must do so at their own risk. The writer holds no responsibility for the data/projection accuracy of this article.
- Disclaimer