Safe haven demand fuels bullish gold outlook
Gold prices have surged to record-high levels in early 2025, driven by an increasingly volatile global economy. This surge has led us to revise our forecasts, anticipating even higher peaks. We expect gold to reach highs above our year-end target price of USD 3500. We expect the rally to extend into next year and prices to stabilise at higher levels. In this article, we explore the key drivers behind gold’s rally.
Why gold is surging
Despite an approximately 30% rally year-to-date, there are several strong indicators that the upward trend will continue. First, the bullish sentiment for gold is fundamentally tied to its status as a safe-haven asset during times of macroeconomic uncertainty. Gold shines in such an environment, because concerns about inflation and economic slowdown drive investors toward gold to hedge against potential losses.
Another important driver is stronger-than-expected demand from central banks. Growing concerns about the weakening dollar have led central banks to pursue de-dollarisation to reduce reliance on the US currency. By accumulating gold reserves, central banks mitigate exposure to dollar fluctuations and thereby buffer against political and economic risks. Furthermore, gold prices may benefit from a lack of investor positioning. Many investors have not yet fully allocated their portfolios to include gold. This means there is plenty of room for more money to flow into gold, which in turn should push gold prices higher.
Finally, a recent pilot program by China allows certain insurers to invest in gold, providing diversification and liquidity benefits. The program caps gold exposure at 1% of total assets, suggesting a potential inflow of approximately RMB 200 billion into the gold market. That is around just over 10% of daily average trading volumes. This initiative could be an overall positive long-term development, responding to a growing interest from institutional investors to participate in gold.
Factors potentially weakening the gold outlook
While the prospects for gold remain largely positive, several factors could exert downward pressure on prices in the near term. Geopolitical developments, like a ceasefire between Russia and Ukraine or further tariff de-escalations, might lead to market consolidation. Such stabilisation could reduce the uncertainty that drives investors toward safe-haven assets like gold. Moreover, gold typically moves in the opposite direction to the dollar. Therefore, should the dollar strengthen due to reduced trade tensions and tariffs, it could negatively impact gold prices.
Conclusion
Looking ahead, the outlook for gold remains promising. Gold continues to be attractive for investors concerned about inflation and market uncertainty. While potential upside remains, downside risks exist if markets stabilise and lessen the demand for safe-haven assets. Nonetheless, persistent central bank purchases and retail investment demand are expected to provide stability and support for the gold market. Even though the gold price has already risen significantly, we anticipate further upside in 2025. We have therefore added gold to our portfolio.
Jan Wirken
Senior Equity & Commodity Research & Advisory Expert