The Gold Paradox: Why Rising Demand is Fueling Investor Anxiety

In early 2025, gold’s meteoric rise has left investors torn between jubilation and unease. The precious metal surged nearly 20% in the first quarter, hitting an all-time high of over $3,165 per ounce in April, only to retreat slightly amid volatility. This price surge, driven by geopolitical chaos and central bank demand, has ignited a paradox: gold is simultaneously celebrated as a safe haven and scrutinized as a potential bubble.

Geopolitical Turbulence: The Catalyst for Gold’s Surge
The primary driver of gold’s ascent is the escalating instability in global politics. Donald Trump’s return to the White House brought sweeping trade policies, including repeated threats of 25% tariffs on Canada and Mexico—a move that disrupted $1.5 trillion in annual trade. Each tariff announcement, described by analysts as “waves of market chaos,” pushed investors toward gold.

Meanwhile, conflicts in Ukraine and the Middle East added fuel to the fire. The collapse of the Israel-Hamas ceasefire in March and rising US-Iran tensions created a climate of fear. “Gold is now the ultimate insurance policy,” said Julia Khandoshko of Mind Money, noting that geopolitical risks have become too volatile to ignore.

Central Banks: The Unsung Drivers of Demand
Central banks have quietly fueled gold’s rise, purchasing over 18 metric tons in January alone. China, which now holds 2,285 metric tons, and Uzbekistan, adding 8 metric tons, are among the largest buyers. David Barrett of EBC Financial Group UK points out that central banks have accumulated 10,000 metric tons over the past decade—a move that has steadily drained supply from the market.

This trend is accelerating. China’s National Financial Regulatory Administration recently allowed 10 insurance companies to invest up to 1% of their assets in gold, potentially injecting $27.4 billion into the market. Such policies signal a structural shift: gold is no longer just a hedge but a strategic asset for institutions.

Monetary Policy and ETFs: The Financial Tailwind
Beyond geopolitics, monetary policy has played a critical role. Negative real interest rates in the US have reduced the opportunity cost of holding non-yielding gold, while gold ETFs attracted $9.4 billion in February—the strongest inflow since 2021.

The World Gold Council reports that global gold ETF assets rose 4.1% to $306 billion in February, a stark contrast to the stagnation in bond markets. This inflow underscores investor confidence in gold’s ability to outperform traditional assets during uncertain times.

The Nervousness Factor: Why the Rise Feels Unsettling
Yet for all its momentum, gold’s surge has sparked anxiety. Physical transfers to US depositories spiked as investors feared shortages and tariff-driven price spikes, creating a $100-per-ounce disparity between London and New York markets. Arbitrageurs exploited this gap, deepening market fragmentation.

Analysts also warn of complacency. “The surge over $3,000 is just the beginning,” insists Khandoshko, but skeptics like David Barrett caution that clarity on trade policies could reduce demand. The tension between optimism and caution reflects a broader question: Is gold’s rise sustainable, or is it a fleeting reaction to panic?

Outlook: Gold’s Bulls See a Decade-Long Rally
Institutional forecasts suggest the latter. JPMorgan and Goldman Sachs predict gold could reach $4,000–$6,000 by 2026, driven by monetary expansion and a weaker US dollar. The US dollar’s structural decline—projected to drop 25–30% by Goldman Sachs—will further boost gold’s appeal to non-US investors.

Central banks are unlikely to retreat from gold either. With global debt at record levels and inflation risks lingering, diversification into gold remains a prudent strategy.

Conclusion: The Bull Case for Gold Remains Unshaken
The data is unequivocal: gold’s rise is not a fleeting anomaly but a response to enduring macroeconomic and geopolitical realities. Central banks’ insatiable demand, ETF inflows, and the erosion of faith in fiat currencies all point to a sustained upward trajectory.

Even the volatility that spooks investors—such as the $120 drop in April—pales against the broader trend. With geopolitical tensions showing no signs of abating and central banks continuing to accumulate gold, the metal’s ascent appears inevitable. As Khandoshko succinctly puts it, “Gold isn’t just a safe haven—it’s the new bedrock of global finance.”

Investors may fear the highs, but the fundamentals are clear: in a world of chaos, gold is the only certainty that keeps getting more valuable.