Gold at All-Time Highs: What’s Fuelling the 2025 Rally?
Alex Lee, Assistant Manager, Dealing | Contract for Differences
Alex thrives on the challenges of the financial markets, constantly seeking to understand intricate trading patterns and market movements. Outside of his professional responsibilities, he immerses himself in analyzing financial trends and staying abreast of the latest market developments. Alex finds the dynamic nature of economic forces fascinating and is passionate about navigating the ever-evolving landscape of trading.
Gold Surpasses US$3,500/oz: A Historic Milestone
Gold has reached a new record high, surpassing US$3,500 per ounce in April 2025, reaffirming its status as the ultimate safe-haven asset in a rapidly shifting global financial landscape. This surge comes amid a combination of macroeconomic stress, geopolitical instability, and evolving central bank strategies that have driven investors toward the precious metal.
The Global Backdrop: Forces Driving Gold’s Ascent
- US Credit Rating Downgrade Raises Concerns [1]
In early 2025, Moody’s downgraded the US sovereign credit rating, citing ongoing fiscal challenges and an expanding national debt. While the downgrade did not result in a widespread market panic, it contributed to mounting concerns about the US government’s long-term fiscal health. Moody’s decision amplified gold’s appeal as a reliable store of value during times of economic uncertainty and potential currency devaluation. It also brings Moody’s in line with S&P and Fitch, which also downgraded their US credit ratings in 2011 and 2023 respectively, stripping the US of its last triple-A credit rating.
[1] The move from AAA to Aa1 has sparked a reassessment of the US dollar’s role as the dominant reserve currency, pushing investors to diversify their portfolios with tangible assets like gold.
- Geopolitical Tensions Fuel Gold’s Safe-Haven Appeal [2]
In 2025, geopolitical risks remain elevated, particularly due to the ongoing US-China trade war, the global energy crisis, and instability in regions such as Ukraine and the South China Sea. The Trump administration’s renewed focus on tariffs has escalated fears of global supply chain disruptions, further boosting gold’s status as a financial hedge.
[2] Gold has historically thrived during periods of geopolitical turmoil, as investors seek to shield their wealth from the impacts of political uncertainty and potential market volatility.
- Central Banks Continue to Buy Gold [3]
Central bank activity in the gold market remains robust. According to the World Gold Council, central banks worldwide increased their gold purchases by 9% year-to-date in 2025, with notable buyers including China, Turkey, and India. This marks a continued trend of reserve diversification, as nations shift away from reliance on the US dollar.
[3] The World Gold Council’s report reveals that global central banks have amassed more than 244 tonnes of gold in the Q1 2025 alone, reinforcing gold’s role as a long-term store of value and financial hedge.
The Federal Reserve’s Role: The Key to Gold’s Surge
A central driver of gold’s record high has been the Federal Reserve’s(Fed) policy stance. Earlier in 2025, slower economic growth and persistent geopolitical risks led to expectations of a more dovish Fed, with potential rate cuts contributing to a weaker US dollar and lower real yields on Treasury bonds. These factors enhanced gold’s appeal as a non-yielding asset in a low interest, volatile currency environment.
However, the Fed has recently adopted a more cautious, wait-and-see approach, keeping rates steady for now. While this pause signals uncertainty about the economic outlook, the continued rate stability alongside a softening dollar has sustained gold’s attractiveness to investors seeking a hedge against inflation and market volatility. As the Fed monitors incoming data, gold’s outlook remains cautiously optimistic in the short to medium term.
Market Indicators: Broad-Based Confidence in Gold
Several market signals suggest strong and sustained interest in gold, supporting the current rally:
- Gold-Backed ETFs: Holdings in gold-backed exchange-traded funds (ETFs) have increased by 3.3% since the start of 2025. These ETFs remain popular among both institutional and retail investors, offering a cost-effective and liquid way to gain exposure to gold without holding the physical asset.
- COMEX Gold Futures: Open interest in COMEX gold futures recently surged to a 24-month high, reflecting heightened demand for gold exposure. While futures participants include hedgers, speculators, and institutions, the rise in open interest signals robust trading activity.
- Volatility: Although gold price volatility has risen, it remains well below the spikes seen during crisis periods like 2020, suggesting that the rally is driven by fundamentals rather than speculation.
Together, these indicators reflect a solid foundation of investor confidence in gold as a strategic hedge against inflation, currency fluctuations, and geopolitical risks, helping to sustain its price momentum in 2025.
Are We in a Gold Bubble?
Although gold prices have reached unprecedented levels, analysts warn of potential risks to gold’s rally, especially in the short term:
- Fed Tightening: If the US economy unexpectedly rebounds or inflation eases, the Fed may delay or reverse rate cuts, reducing gold’s appeal.
- Stronger US Data: Positive economic indicators could lead investors to rotate out of safe-haven assets, dampening demand for gold.
- Geopolitical Resolution: A sudden de-escalation of trade tensions or resolution of key geopolitical issues may return risk-on sentiment, potentially leading to a cooldown in gold prices.
That said, most analysts remain bullish on gold for the remainder of 2025. Major financial institutions, including J.P. Morgan and Goldman Sachs, have recently revised their gold forecasts upwards:
- According to an article by Reuters, J.P. Morgan predicts an average gold price of US$3,675 per ounce in Q4 2025, driven by continued economic uncertainty and low yields.
- Goldman Sachs has set its target at US$3,700 per ounce, citing strong central bank demand and rising ETF inflows as investors anticipate rate cuts and growing recession risks.
What Should Investors Do?
Given the current market dynamics, investors should adopt a balanced approach to gold exposure:
- Portfolio Diversification: Gold should form part of a diversified portfolio strategy, acting as a strategic hedge against inflation and economic uncertainty, rather than a primary growth engine.
- Monitor the US Dollar: A reversal in the US dollar’s downtrend could negatively impact gold prices, so staying alert to currency market trends is critical.
- Watch the Fed: The Fed’s policy outlook remains the key driver of short-term gold prices. Investors should remain alert to any shifts in monetary policy that could affect gold’s appeal.
Conclusion: The Long-Term Case for Gold
Gold’s recent surge to record highs reflects a combination of dovish monetary policy, geopolitical instability, and a structural shift away from US dollar dependence. While short-term pullbacks are possible, the long-term case for gold remains compelling. As global markets continue to face uncertainty, gold stands out as a valuable asset in an increasingly fragmented financial landscape.
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Reference
[1] https://ratings.moodys.com/ratings-news/443154
[2] https://www.imf.org/-/media/Files/Publications/WEO/2025/April/English/text.ashx
[3] https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q1-2025
[5] https://www.gold.org/goldhub/research/gold-etfs-holdings-and-flows/2025/05#:~:text=Supported%20by%20a%20higher%20gold,3%2C915t%20in%20October%202020
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