Gold has thrived through the uncertainty shrouding global markets during the past 12-14 weeks, peaking at about US$3,500 in April before pulling back to about US$3,300 currently amid some profit-taking from Western investors.
However, the team expects prices to stabilise in the second quarter of 2025 coming off the back of a ‘feverish pace’ of growth over the last 14 weeks, which they believe could be ‘healthier’ for the market over the medium term.
“Global gold ETF physical holdings are still down 18-20% from their 2020 pandemic peaks and the sharp fall in managed money net length on Comex (Commodity Exchange Inc.) has not prompted a meaningful gold futures price collapse,” the team writes. “Both of these factors suggest plenty of scope for investors to reengage gold longs as they assess macro market conditions into 2H2025.”
With the US Federal Reserve under pressure in a climate of high inflation amidst slowing economic growth, the market is still pricing in three or four rate cuts this year which puts gold in a favourable position to continue thriving.
“Gold historically thrives in regimes where real interest rates are falling, inflation risks are
elevated, and policy credibility is in question. All three are now potentially in play,” the team states.
Demand drivers
Demand from central banks remained resilient in the first quarter of 2025 as they emerged as ‘sizable and price-inelastic’ buyers of the gold metal.
See also: Could Google lose search dominance in the AI age?
This suggests a structural shift from central banks in managing their reserves as they navigate threats such as currency depreciation, geopolitical instability and the uncertainty of the US retaining its financial dominance in the long term.
According to the team’s report, data shows that central banks had net purchases of about 244 tons of gold in the first quarter this year which is a slight decline from the previous quarter but is 24% higher than the quarterly average in the past five years.
On top of that, retail investor activity also remained steady and demand remained resilient with a 3% increase year-on-year.
US tariffs on China have also led several Chinese investors to fall back towards gold and potential renewed interest in gold might be on the horizon for China as seen from an increase in onshore gold premiums from -0.1% to 1.3% from March to April.
An optimistic outlook
State Street has laid out a base case outlook for gold prices in the range of US$3,100 to US$3,500 supporting a slowing but stable pace of growth this month, sustained by geopolitical uncertainty and tensions for the balance of 2025, with a proposed likelihood of 45%.
Under State Street’s bull case, prices might range between US$3,500 to US$3,900, due to a possible escalation of trade and tariff tensions which will put continued downside pressure on the greenback as investors turn underweight on US equity exposure.
For more stories about where money flows, click here for Capital Section
Sustained interest by China-based investors along with central banks’ interests will be growth drivers too, with a likelihood of 35%.
Lastly, a bear case with 20% probability put forth by the team forecasts gold prices to dip within the range of US$2,700 to US$3,100, citing a surprising significant de-escalation of trade and tariff tensions improving US-Sino relations, prompting investors to return to US equities.
A de-escalation in tensions could also reduce Chinese interest in the yellow metal and could reduce the need for central banks to hedge on gold, causing a decrease in demand.
