Gold’s performance has been rock-solid, so far.
The price of gold has risen by more than 40% in the past year.
From the lows of $1,630 per ounce in October 2022 to the current level of $3,260, gold has delivered 100% in just about 28 months.
Now, that’s what is called – par excellence performance.
While the gold prices have doubled in less than 30 months, the road ahead seems bumpy. It’s understandable. One can’t expect a linear growth in any asset class perpetually.
But, is something more happening here?
Behind Gold’s Excellent Performance
The tailwinds that drove the price of gold gathered pace over the past three years. Geopolitical tensions prompted central bank buying, attracting global investors to gold funds, thereby increasing demand for the precious metal. In response, prices rose.
The world knows that gold is the ‘God of Uncertain times’.
From the Russia-Ukraine war to Middle East conflicts to growing concern about the US fiscal situation, gold consistently found support as a safe-haven asset in uncertain times.
But, things are changing fast.
Even though 2025 started well for gold, with prices up over 27% year-to-date, it’s the recent performance that’s a matter of concern. Over the last one month, gold is half a percentage point down.
So, is the rally over for gold? Has the yellow metal finally lost its shine? Let us explore.
Headwinds for Gold
Until recently, gold was near its record-high peak price of $3,500 recorded on April 22, 2025.
Now, it seems to be losing steam.
Gold rate today in India is Rs 96,180 (under US$ 3,300), down 4% from the all-time high of Rs 1 lakh recorded on April 22.
Trump’s stance on tariffs appears to have eased the uncertainty. A lengthy trade war seems to have been averted by the White House’s latest signal that Trump intends to go slow on the imposition of reciprocal tariffs.
The next big gold-boosting moment was the Israel-Iran war, but that, too, ended (good for the world) with a ceasefire after 12 days.
Markets most likely sensed it early. As economic uncertainty did not look like a possibility soon, gold remained in a narrow range. Over the last two months, the gold return is minus 2 percent!
Tailwinds for Gold
Many experts believe that gold is currently down but not out. Why so? This is because one of the major pushes for gold came on the back of central banks becoming bullish on the safe-haven asset.
And, they are still scooping up gold. Major banks continue raising forecasts for next year.
A recent World Gold Council report shows that 43% of central banks will increase their exposure to gold over the next 12 months. It simply means a lot more buying orders for gold are coming in!
Next up are the interest rates. Gold has an inverse relationship with interest rates. When rates fall, money moves into the non-yielding gold asset. Here’s how it matters, more so now.
US Fed has kept interest rates unchanged at 4.25%-4.5% since December 2024. Talks of rate cuts have begun, subject to tariff’s impact on inflation.
A rate cut spree may occur soon, starting in September, and rates could fall 200bps to 300bps over the next 24-36 months. Every percentage drop in rates is bullish for gold, with other factors remaining constant.
The other big factor that is triggering a more severe financial crisis is the dollar. Gold, after all, thrives in a crisis and an uncertain economic environment.
The dollar index, which measures the performance of the dollar against a basket of foreign currencies, is well below 100 after many years, down over 10% so far this year.
But why will a fall in the dollar index boost gold prices? Yes, weakness of the dollar means weakening of the US economy, which leads money to flow into gold, a safe haven asset in uncertain times. In such events, investors don’t want to hold US dollar-denominated assets, including US bonds.
The trust in the US economy falters, and when investors are worried about the world’s largest economy, in gold they would only trust.
Recently, Bank of America (BofA) predicted that gold prices will reach $4,000 per ounce by next year, marking an increase of approximately 20% from current levels.
But, what makes them so bullish on gold?
Not the flying missiles, as they claimed in their report. BofA puts the blame on the incoming Trump’s ‘Big and Beautiful’ bill that could severely damage the US fiscal position, putting more pressure on the dollar.
Is it Curtains for Gold?
The world is still not out of the woods. The skies over the Middle East are clear after the Israel-Iran ceasefire, but the conflict between Russia and Ukraine is still unfolding. Overall, the geopolitical situation is volatile and at a boiling point.
Tariffs, war, and the economy may be side worries now, but ignoring gold may be a risky move. Market experts are sensing more weakness ahead for the US dollar and US Treasuries. A US recession is still not being ruled out.
What to do now
The bull run in gold is showing signs of a potential cool-down or pullback, but it is not definitively over. Gold may show weakness and profit-booking and could even see corrections in the near term. Citibank thinks the pullback could be far sharper. For long-term investors in gold, that could be a time to accumulate more.
A caveat. Gold has already run up a lot; a crash in price cannot be ruled out. So, have a plan in place with 5-10% of portfolio exposure to the precious metal without going overboard.
The day the world returns to normalcy with global economies back on track and no more military action, you know the time has come for the gold to go dormant. Till then, make hay when the gold (sun) shines!
Also Read: Germany, other EU countries urged to repatriate gold stored in US vaults