Gold prices are expected to remain elevated for the foreseeable future, with the precious metal’s price rising 25% to US$3,300 per ounce in the first five months of 2025. This surge is attributed to growing investor demand driven by economic uncertainty and a weaker US dollar, according to the latest report by State Street Global Advisors (SSGA).
The investment management firm’s midyear outlook for gold highlights a range of factors that will likely sustain the price momentum. These include ongoing geopolitical tensions, global inflation, and shifting trade dynamics, particularly in light of US policies and fiscal challenges. SSGA points to a growing preference for gold as a low-volatility, portfolio-diversifying, and perceived safe-haven asset amid increasing macroeconomic risks.
“Whether due to lingering global inflationary pressures, trade wars, the US’s shifting foreign policy, rising government debt levels, or populist political movements, demand for gold should continue to grow, especially as the range of policy, geopolitical, and economic outcomes widens,” the report states.
Tactical and Structural Drivers of Gold’s Price Surge
SSGA’s outlook is bullish for the medium term, citing a mix of tactical and structural factors supporting gold’s price elevation. Among the tactical drivers are:
Uncertainty in trade policy: The ongoing trade tensions and volatility in international relations, particularly between the US and China, are expected to drive gold demand.
ETF Flows: Investment flows into gold-backed exchange-traded funds (ETFs) have been a significant contributor to recent price increases.
Recession Risks and Federal Reserve Easing: Concerns over a global recession and the possibility of the Federal Reserve easing interest rates further support gold’s appeal as a safe-haven investment.
Structurally, gold benefits from several long-term trends:
Strong Central Bank Demand: Central banks around the world, especially in emerging markets, have continued to increase their gold reserves.
Sovereign Debt Loads: Rising government debt burdens, particularly in major economies, contribute to the case for gold as a store of value.
De-dollarization: The ongoing trend of countries seeking alternatives to the US dollar is expected to drive further demand for gold as a global reserve asset.
According to SSGA, the gold market has now entered a higher price regime, with gold expected to remain above US$3,000 per ounce for the remainder of 2025. The report suggests that prices could even reach US$4,000 to US$5,000 per ounce within the next 12 to 24 months.
Return of ETF Inflows and Geopolitical Factors Driving Demand
A major factor supporting the bullish outlook for gold is the return of financial inflows, particularly from Western gold ETF investors, who are expected to contribute significantly to gold demand in 2025. These inflows are tied to ongoing uncertainty surrounding trade policies, with investors unable to predict the timing or outcomes of tariffs. SSGA speculates that US President Donald Trump’s geoeconomic policies could benefit gold as governments and investors begin to question the US’s dominance in the financial and currency markets.
Key Themes to Support Gold Prices in the Medium Term
SSGA identifies five key themes that will likely bolster gold prices over the coming months and years:
Gold ETF Inflows: Increased investment in gold-backed ETFs, especially as institutional investors seek safe assets.
China’s Gold Consumption: A rebound in demand from Chinese consumers will likely continue to support prices.
Sovereign Sector Demand: Central banks, particularly those in emerging markets, are expected to maintain or increase their gold purchases.
Alternative Fiat Demand: Growing interest in alternatives to fiat currencies, such as gold, will continue to drive demand.
Federal Reserve Rate Cuts: The potential for the US Federal Reserve to cut rates further is expected to fuel investment in gold.
APAC Demand for Gold Bars and Coins Remains Strong
In the Asia-Pacific region, gold investment demand has surged in recent years, significantly contributing to the higher gold price regime. China, India, and Japan have been the primary drivers of gold consumption, spurred by factors such as economic uncertainty, geopolitical instability, local currency depreciation, and underperformance of risk assets compared to gold.
According to SSGA, Asia-Pacific’s share of global gold bar and coin demand rebounded to 65% last year, recovering from the consumer recession of 2020. This is 2 percentage points higher than the average seen from 2010 to 2019, further reinforcing the region’s influence on global gold markets.
Potential Risks and Price Fluctuations
Despite the overall bullish outlook, SSGA acknowledges the possibility of price softening in the short term. The firm suggests that gold prices could dip to a range of US$2,700 to US$3,100 per ounce under several scenarios:
De-escalation of Sino-US tensions: If a semi-permanent resolution is reached between the US and China, it could lead to a stronger dollar and reduced demand for gold.
Volatility Compression: If financial markets stabilize, it could dampen demand for safe-haven assets like gold.
Rebound in US Growth: A rebound in US economic growth could reduce the need for gold as a hedge against economic instability.
Softer Demand: A slowdown in demand from central banks, China, and gold ETFs could also lead to lower prices.
Conclusion
In conclusion, State Street Global Advisors expects gold to remain a strong investment choice throughout 2025, driven by a mix of geopolitical, economic, and financial factors. While there may be periods of price volatility, the structural and tactical drivers suggest that gold is likely to stay elevated above US$3,000 per ounce for the foreseeable future. Investors looking for a safe-haven asset amidst economic uncertainty and trade volatility may continue to find gold a valuable addition to their portfolios.
Related topics:
