Gold’s 2025 Rally: Is the Safe-Haven Asset Still a Buy?

Gold’s 2025 rally has defied conventional market narratives, surging 26% in U.S. dollar terms and hitting 26 all-time highs by mid-year. This performance, driven by a confluence of geopolitical risk, macroeconomic uncertainty, and structural shifts in global finance, has reignited debates about gold’s role as a safe-haven asset. With central banks, ETFs, and institutional investors increasingly positioning gold as a hedge against volatility, the question remains: Is gold still a compelling buy in 2025?

Geopolitical Risk: A Catalyst for Safe-Haven Demand

The Israel-Iran military confrontation in early 2025 exemplifies how geopolitical tensions amplify gold’s appeal. Following Israel’s strike on Iranian nuclear facilities and Iran’s retaliatory drone attacks, gold prices spiked to $3,417.10 per ounce, with futures hitting $3,436.90 [1]. Such conflicts, coupled with U.S.-China trade frictions and the Russia-Ukraine war, have created a “fear premium” for gold. The World Gold Council’s Gold Return Attribution Model (GRAM) attributes 4% of gold’s first-half 2025 return to geopolitical risk alone, with the broader risk/uncertainty factor accounting for 16% of total returns [3].

Central banks have mirrored this trend. BRICS+ nations, including China, Russia, and India, added over 800 metric tons of gold to their reserves since 2023, signaling a strategic shift toward de-dollarization and diversification [2]. This institutional buying has provided a floor for prices, even as private-sector demand via ETFs surged by 397 metric tons in the first half of 2025 [5].

Macroeconomic Uncertainty: The Dollar’s Weakness and Rate Cuts

Gold’s rally is further underpinned by macroeconomic headwinds. A weaker U.S. dollar—driven by inflationary pressures and expectations of Federal Reserve rate cuts—has made gold more accessible to international buyers. J.P. Morgan Research forecasts gold to average $3,675/oz by Q4 2025 and climb toward $4,000/oz by mid-2026, citing sustained demand and a “higher-for-longer” gold price regime [2].

The Economic Policy Uncertainty Index (EPU) underscores this dynamic, showing a 0.68 correlation with gold’s price highs in 2025 [4]. As the U.S. imposes tariffs on gold bars from Switzerland and escalates trade tensions, market uncertainty has intensified. These policies, coupled with global debt accumulation and the stickiness of inflation, have reinforced gold’s role as a hedge against currency devaluation and systemic risk [6].

Central Bank Demand: A Structural Tailwind

While central bank purchases have slowed compared to 2022-2023, they remain a critical driver. The World Gold Council notes that official sector demand accounts for roughly 30% of global gold demand, with Turkey, Egypt, and other emerging markets seeing surges in physical gold purchases [5]. This trend reflects a broader reallocation of reserves away from dollar-dominated assets, particularly in regions exposed to U.S. sanctions.

Outlook: Scenarios for the Second Half of 2025

The future of gold hinges on three scenarios:
1. Base Case: Moderate global growth and Fed rate cuts keep gold rangebound, with potential gains of 0-5% [3].
2. Worsening Conditions: Stagflation or recession could drive prices up 10-15% as safe-haven demand intensifies [3].
3. Conflict Resolution: A de-escalation of geopolitical tensions might trigger a 12-17% pullback [3].

Investors must weigh these outcomes against structural tailwinds. Rising global debt, de-dollarization, and the stickiness of gold supply suggest a long-term bullish case, even if short-term volatility persists.

Conclusion: A Buy, But With Caution

Gold’s 2025 rally is a testament to its enduring role as a hedge against geopolitical and macroeconomic chaos. While the asset’s performance in the second half remains contingent on global stability, its structural drivers—central bank demand, dollar weakness, and inflationary pressures—justify a cautious buy. For investors seeking diversification in an uncertain world, gold remains a cornerstone of resilient portfolios.

Source:
[1] Gold price today: bullion surges toward all-time high as Israel-Iran conflict triggers safe-haven rush and fuels global market fears [https://m.economictimes.com/news/international/us/gold-price-today-bullion-surges-toward-all-time-high-as-israel-iran-conflict-triggers-safe-haven-rush-and-fuels-global-market-fears/articleshow/121831279.cms]
[2] A new high? | Gold price predictions from ... [https://www.jpmorgan.com/insights/global-research/commodities/gold-prices]
[3] Gold Mid-Year Outlook 2025 [https://www.gold.org/goldhub/research/gold-mid-year-outlook-2025]
[4] Understanding the Gold Price Rally: Key Drivers in 2025 [https://discoveryalert.com.au/news/gold-price-rally-2025-precious-metal-boom/]
[5] WGC: Gold Keeps Climbing, Future Hinges on Economic ... [https://investingnews.com/gold-uncertain-future/]
[6] Gold 2025 Midyear Outlook: A High(er) for Long ... [https://www.ssga.com/us/en/institutional/insights/gold-2025-midyear-outlook-a-higher-for-longer-gold-price-regime]