The gold market is large, global, and highly liquid. We estimate that physical gold holdings by investors and central banks are worth approximately US$4.8tn, with an additional US$1.0tn in open interest through derivatives traded on exchanges or the over-the-counter (OTC) market.
The gold market is also more liquid than several major financial markets, including euro/yen and the Dow Jones Industrial Average, while trading volumes are similar to those of US 1-3 year treasuries and US T-Bills among primary dealers (Chart 9). Gold’s trading volumes averaged approximately US$132bn per day in 2022. During that period, OTC spot and derivatives contracts accounted for US$78bn and gold futures traded US$52bn per day across various global exchanges. Physically-backed gold ETFs (gold ETFs) offer an added source of liquidity, with global gold ETFs trading an average of US$2.3bn per day (Chart 10).
The scale and depth of the market means that it can comfortably accommodate large, buy-and-hold institutional investors. In stark contrast to many financial markets, gold’s liquidity does not dry up, even at times of financial stress. Importantly too, gold allows investors to meet liabilities when less liquid assets in their portfolio are difficult to sell, or mispriced.