Gold hits $380bn H1 record as central banks and AI demand diverge

Gold recorded a striking divergence in the first half of 2026: total demand held flat in volume terms at 1,269 tonnes in Q2, yet its dollar value rocketed to a record US$380bn for the half-year, according to the World Gold Council's Q2 2026 Gold Demand Trends report. The headline number masks a market fracturing across investor class, geography, and end-use sector, fractures that carry implications well beyond commodity markets.

The LBMA gold price averaged US$4,506/oz in Q2, down 8% from Q1's record but still 37% above the same quarter a year earlier. That price level is simultaneously attracting sovereign-reserve managers, distorting consumer jewellery markets, and reshaping industrial supply chains, across three distinct demand pools that are moving in opposite directions.

Central banks and the reserve diversification trade

Central bank net purchases rebounded sharply to 289 tonnes in Q2, a fivefold increase on a downwardly revised Q1 figure and a record for a second quarter. Poland's National Bank was the largest single buyer, adding 51 tonnes and lifting its reserves to 632 tonnes, edging towards a declared 700-tonne target. The People's Bank of China added 33 tonnes, its largest quarterly addition since Q4 2023, bringing reported holdings to 2,346 tonnes.

The WGC's own central bank survey reinforces the structural rather than tactical nature of this buying: 89% of respondents expected global gold reserves to rise over the next 12 months, with a record 45% intending to increase their own holdings. The drivers, reserve diversification, geopolitical-risk hedging, and protection against dollar volatility, are the same themes animating sovereign-wealth allocations into a broader range of hard assets, from infrastructure to commodities. For cross-sector investors tracking sovereign capital flows, this is a signal that the de-dollarisation trade remains live and is broadening.

AI as a new demand engine for gold

A less-discussed convergence story sits inside the technology segment. Gold used in electronics rose 4% year-on-year to 68 tonnes in Q2, with AI infrastructure identified as the primary growth engine. Advanced semiconductor packaging, high-frequency printed circuit boards for AI servers, and LEO satellite components all require gold at a standard that lower-grade consumer electronics do not. TSMC reported a 77% jump in Q2 net profits to US$22bn and announced a US$100bn US production expansion, capacity growth that directly sustains gold demand in advanced chip fabrication.

The bifurcation is sharp: while AI-related electronics demand grew, smartphone shipments are forecast by IDC to contract by nearly 14% in 2026, their steepest annual fall on record. Gold thrifting and substitution are accelerating in low- and mid-range consumer devices even as AI server and satellite demand absorbs more. For investors allocating across the semiconductor and materials supply chain, this intra-sector split matters: gold demand is becoming structurally correlated with AI capex cycles rather than consumer device cycles.

Jewellery volumes collapse as value holds

At elevated price levels, jewellery consumption fell to 278 tonnes globally in Q2, one of the weakest quarters since the pandemic, yet the dollar value of H1 jewellery demand rose 22% year-on-year to US$86bn. Consumers are buying less gold by weight but spending more per transaction, gravitating towards lighter-weight and investment-adjacent products. China's jewellery demand fell 28% year-on-year to its lowest second-quarter level since 2004. India dropped 15% despite seasonal Akshaya Tritiya support, further pressured by a government-led import duty hike and direct discouragement of gold purchases from Prime Minister Modi.

Gold ETFs swung to outflows of 45 tonnes in Q2, concentrated in North America, where rising real yields and a strengthening dollar raised the opportunity cost of holding the metal. Asian ETFs had their strongest H1 on record despite a June reversal as Chinese investors rotated into equities. European funds were the only region to record positive Q2 flows.

The second-half outlook: investment versus gravity

The WGC expects investment, particularly OTC activity and Asian physical buying, to remain the primary demand driver through H2, with central banks on course for another strong year though likely below 2025 totals. Jewellery volumes face continued pressure, and mine supply, while at a record H1 of 1,867 tonnes, is constrained by rising all-in sustaining costs, which hit a record US$1,781/oz in Q1.

The macro read-across for cross-sector allocators is clear: gold is increasingly functioning as a barometer of geopolitical-risk premium, AI infrastructure intensity, and sovereign reserve strategy simultaneously. A commodity that was once a single-variable inflation hedge is now pricing three distinct structural shifts at once.