Gold prices up 10% in 2025: Here we decode why
What's the story
The price of gold has been on a steady rise since the start of 2025, with nearly 10% increase. The precious metal has set new price records 10 times this year, peaking at $2,886 per ounce.
The surge is largely driven by market volatility and significant purchases by central banks, especially China.
Analysts predict the price could further rise to $3,000 per ounce amid ongoing economic uncertainties.
Investment shift
Appeal as a safe-haven asset
The constant rise in gold prices also reflects a change in investment strategy.
Investors are transferring their wealth from riskier assets such as stocks to gold, which is considered a safe-haven asset.
This trend is especially visible among major central banks around the world, particularly those in Asia.
These institutions are diversifying their foreign exchange reserves away from the US Dollar and investing heavily in gold instead.
Strategic move
China leads in diversifying foreign exchange reserves
China is at the forefront of diversifying foreign exchange reserves, cutting back on US Treasuries and purchasing huge quantities of gold.
The move is viewed as a response to concerns over US actions against Dollar-denominated assets, as trade tensions between the two countries continue to escalate.
China's gold-buying spree is likely to continue, potentially pushing prices even higher.
Market response
Gold's performance amid geopolitical tensions and policy changes
Geopolitical tensions and policy changes have also impacted gold's market performance.
The ongoing Russia-Ukraine conflict, unresolved Middle East tensions, and US Federal Reserve's interest rate cuts have all led to a 30% rally in prices in 2024.
This marked the best annual performance for gold in over a decade.
Additionally, President Donald Trump's victory in the US presidential election has given another boost to the gold rally as investors remain cautious about his trade policies and pro-growth agenda.
Policy impact
Trump's policies and their impact on gold prices
President Trump's expansionary policies, aimed at promoting domestic manufacturing and growth for American companies, are expected to push the debt-to-GDP ratio higher.
He has shown a preference for lowering corporate tax rates.
His tariffs on China and other nations have also raised concerns that could weigh on the global economy.
These policy changes have further elevated gold's importance as a strategic asset amid potential inflationary pressures.
Demand surge
Global demand for physical gold rises
The demand for physical delivery of gold futures contracts has skyrocketed in New York amid Trump's threat to impose a universal trade tariff of at least 10% on all imported goods, including gold.
This prompted traders to import 393 metric tons of gold into the COMEX commodity exchange in New York, bringing gold inventories to levels last seen at the start of the COVID-19 pandemic.
The city's gold stockpiles now stand at $82 billion.
Accumulation trend
Central banks continue to hoard gold
According to the World Gold Council (WGC), central banks have been hoarding gold at a breakneck speed with purchases surpassing 1,000 tons for three years in a row. Poland, India, and China are some of the major buyers.
India has been stocking up on massive amounts of gold over the years with its reserves growing exponentially.
Gold now makes up over 11% of total foreign exchange reserves with the Reserve Bank of India (RBI).