Gold has more room to run despite rallying to record highs above the $2,900 level. Heightened geopolitical volatility, strong central bank demand, and perceptions of a shortage drive are some factors that support higher growth prices. The precious metal has been on a tear, rallying by more than $300 from $2,587 on December 18th 2024.
Gold to $3,000
According to the World Gold Council, the recent rally to record highs comes from the markets reacting to global demand hitting record highs. Given the tailwinds in play, analysts at UBS have revised their price target for the yellow metal, insisting it is likely to power to the $3,200 level. The peak should occur in the latter half of the year, from where price should ease and settle at an elevated level in the coming years.
One of the catalysts that drove gold prices higher last year was the uncertainty around President Donald Trump’s trade policies. The tailwind is still in play as the US president threatens to hit countries with trade tariffs as one way to reduce the US trade deficit.
. “The policies of the new US administration — particularly the potential for tariffs — have already caused dynamics in the gold market to shift. The first dynamic is around price, with uncertainty surrounding the scope, timing, and impact of these tariffs has heightened overall market risk, prompting investors to turn to gold as a safe-haven asset,” said John Reade, senior market strategist at the World Gold Council.
Gold Price Tailwinds
In addition to trade uncertainty, rumours of potential gold shortages continue to increase prices. The respect of reduced supply amid heightened demand would always push gold prices higher. While there is no general shortage of precious metals, traders’ large shipments of gold into the United States have triggered reduced supply in the London market, consequently rattling traders.
As geopolitical uncertainties persist, especially with the stalemate in the Middle East and the Russia-Ukraine war, gold should remain a preferred asset class as a store of value. Similarly, growing gold demand from central banks across the globe is also fuelling supply issues in the market, resulting in an uptick in prices.
Central banks are increasingly purchasing gold as a way of diversifying their reserves. Gold has also proved to be a reliable asset class for hedging against asset currency fluctuations amid uncertainties about the global economy. Demand for gold totalled 1,045 metric tons in 2024, close to 1,080 metric tons in 2022 and 1,050 metric tons in 2023.
In the fifteen years since the global financial crisis of 2008, central banks have been net buyers of the precious metal. As an alternative, central banks kept up their surprisingly high purchases for the third consecutive year, highlighting gold’s enduring significance in world finance.
According to J.P. Morgan strategists, two possible macro scenarios are likely to fuel higher gold prices. In a disruptive path scenario, gold purchases as a devaluation hedge will be fueled by higher tariffs, trade tensions, stronger inflation, an expansion of the budget deficit, and increased economic growth risks. Since gold doesn’t carry the same tariff risks as industrial-linked commodities during a trade conflict, investors seeking to hedge inflation with real assets are likely to turn to it.
