What does the "niche market" for gold mean? Goldman Sachs: For every 0.01% increase in buying volume, the price of gold rises by 1.4%.

Despite its massive size, the gold market remains a niche asset in the portfolios of Western investors—a characteristic that is the fundamental reason why gold prices are highly sensitive to capital inflows.

Goldman Sachs analysis shows that in December of last year, gold ETFs accounted for only 0.17% of US private financial portfolios, down from the peak level in 2012. Goldman Sachs estimates that for every 0.01 percentage point increase in gold's share of US portfolios, the price of gold would rise by approximately 1.4% . This means that even a very modest inflow of funds is enough to have a significant upward effect on gold prices.

Currently, gold is experiencing one of its largest monthly gains in history. JPMorgan Chase's May 2025 projections further confirm the market's high sensitivity—if foreign investors were to transfer 0.5% of their U.S. assets to gold, that would be equivalent to approximately $70 billion annually, which, under the market conditions at that time, could drive gold prices up by about 18% annually.

With such a large size, real liquidity is limited.

Gold is one of the world's largest asset classes in terms of total value.

It is estimated that the current above-ground gold reserves are worth over $30 trillion, and the weekly turnover of the London spot market once exceeded $1 trillion earlier this year. The global daily turnover of gold easily exceeds $300 billion.

However, this astonishing volume of transactions is largely an illusion.

Bloomberg reports that the trading volume is primarily driven by high-frequency transactions between banks, market makers, algorithmic funds, and forex traders, rather than a genuine competition for new investment funds in physical metals.

This structural characteristic means that the gold market can hardly absorb large-scale fund transfers from bond investors without triggering a significant price increase. For investors seeking safe haven due to concerns about the US debt crisis, the "capacity bottleneck" in the gold market actually constitutes an intrinsic driving force for price increases.

"Currency devaluation trading" continues to heat up

The core logic supporting current gold prices is the market's continued focus on long-term borrowing costs in the United States. The so-called "currency devaluation trade" refers to investors betting that policymakers will alleviate debt pressure by lowering interest rates and eroding the purchasing power of the dollar, thus buying gold as a hedge.

Bloomberg reports that this deal logic will be further strengthened if efforts to curb long-term borrowing costs in the United States continue.

This Friday, Federal Reserve Chairman Warsh will speak in Jackson Hole, Wyoming, and the market will be closely watching his remarks. If Warsh signals that fiscal pressures are beginning to transmit to monetary policy, it will further enhance the attractiveness of gold and inject a new catalyst for "currency devaluation trades."

Whether this can be sustained depends on investor attention.

Whether gold can maintain its current upward trend largely depends on whether investors continue to focus on the US government debt problem, rather than turning their attention to the war in Iran or the burgeoning artificial intelligence investment boom.

Structurally, gold still accounts for a relatively low proportion of Western investors' portfolios—especially after years of strong gains in the US stock market, which has suppressed its relative attractiveness. This underweighting is both the root cause of gold's high sensitivity to incremental capital inflows and also means that there is still considerable potential for upside once investor sentiment shifts.

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