Gold prices have climbed 13.6% in 2025 and breached $3,000 per ounce last week, setting a new all-time high. Geopolitical tensions and economic uncertainty are driving safe-haven flows, pushing up gold prices. However, several other longer-term factors and trends will help determine whether the rally will be sustained.
Causes Behind The Recent Gold Rally
The biggest shift in the gold market in recent years is increased demand from global central banks. According to the World Gold Council, central banks purchased over 1,000 metric tons of gold in 2024, marking the third consecutive year of significant buying and approximately double the average annual purchase amount for the prior decade. Central bank reserve buying has continued in 2025, led by Uzbekistan, China, Kazakhstan, Poland, and India.
Central banks started to increase their allocation to gold following the seizure of Russia’s central bank assets in 2022 following the invasion of Ukraine. Western nations’ freezing of $300 billion in Russian central bank fiat currency assets exposed the vulnerability of holding reserves in foreign currencies or overseas institutions. Russian central bank gold assets were not seized because they were held inside Russia.
This event launched a global drive for diversification, with gold emerging as a preferred asset due to its independence from political and economic sanctions. In addition to reducing the risk of seizure, central banks view gold as a hedge against inflation and a way to reduce reliance on dollar-heavy reserves. Given the Trump administration’s less-friendly approach to foreign relations, central bank de-dollarization via increasing allocations to gold is likely to continue.
Political And Economic Uncertainty Drive Demand
Geopolitical and economic tensions are affecting more than central banks’ gold appetite. They are also impacting investor behavior. Rising global debt levels, renewed fears of recession, escalating tariffs on trade, and a global monetary easing cycle have pushed investors toward gold as a hedge.
Global gold ETF inflows have accelerated significantly so far in 2025. According the World Gold Council, physically backed gold ETFs took in $9.4 billion in February, the largest monthly inflow since March 2022. The largest U.S. gold ETF, iShares GLD, now has $86.6 billion in assets, up from $73.2 billion at the end of 2024. The inflows helped propel GLD 13.6% higher in 2025 and 37.8% over the last year.
Institutional investors also believe the gold rally can continue. In his market and macro outlook recorded on March 11, DoubleLine CEO Jeffrey Gundlach said, “I think gold will make it to $4,000. I’m not sure that’ll happen this year, but I feel like that’s the measured move anticipated by the long consolidation at around $1,800 on gold.” In addition, Goldman Sachs recently revised its gold forecast higher to $3,100 a troy ounce by the end of 2025.
The enthusiasm for gold has spilled over to gold miner stocks. VanEck’s GDX, the largest gold miner ETF, has jumped 28.8% year-to-date, significantly outperforming the S&P 500, which has lost 4%. GDX, which includes mining giants Newmont and Agnico Eagle Mines as its two largest holdings, has climbed 52.5% over the last year. Miners are leveraged to the price of gold, and rising spot prices are expected to generate significant revenue and profit growth for the sector this year.
Gold demand could also be boosted by new entrants into the market. For example, China recently launched a pilot program allowing ten major insurance companies to invest up to 1% of their assets in gold for the first time. The program, announced by the National Financial Regulatory Administration on February 7, 2025, could add $27 billion to demand and help support gold prices.
Gold Price Outlook And Potential Risks
New sources of demand and continued geopolitical stress could trigger additional flows into gold over the next few quarters. However, despite the upward momentum, there are some reasons to be cautious about the continuation of the trend.
An improvement in the global economic outlook, possibly stemming from a resolution in the tariff dispute, could diminish gold’s appeal as a safe-haven asset. If trade tensions ease and growth metrics strengthen, investors may rotate away from defensive assets such as gold and back into growth equities.
Additionally, with inflation concerns beginning to resurface due to higher potential import prices in the U.S., the Federal Reserve may not be able to deliver on the three 0.25% cuts currently priced into the Fed funds market. Higher interest rates for longer would increase the opportunity cost of holding gold.
Jewelry demand, which constitutes about 40% of global gold consumption, may decline due to record-high prices. India, the world’s second-largest country in gold jewelry demand, is going through a temporary soft patch in economic growth. Any significant decline in buying from Indian consumers could signal weakening fundamentals, potentially offsetting demand from investors and central banks.
Increasing gold allocations over the last year has clearly worked out well for investors. Central bank demand is unlikely to fade in the current environment, and momentum traders could chase the market above $3,000 per ounce. However, at least some of the recent rise is attributable to safe-haven flows, which may be temporary. If the Trump administration is correct in its forecast for an improved economic outlook in the second half of 2025, the current pressures on growth could abate, triggering a reversal of sentiment in the gold market. Until then, the trend is your friend, and the trend is still intact.
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