Gold's Record Rally: Is Now the Time to Invest as Rate-Cut Bets Intensify?

In 2025, gold has surged to record highs above $3,600 per ounce, driven by a perfect storm of Federal Reserve rate-cut expectations, geopolitical tensions, and a global shift away from traditional safe-havens like the U.S. dollar and Treasuries. With traders pricing in an 88% probability of a 25-basis-point rate cut at the Fed's September meeting and a 12% chance of a 50-basis-point cutGold rallies to record high above $3600/oz as Fed rate cut ...^[1], investors are increasingly reallocating assets to gold as a hedge against monetary debasement and economic uncertainty. This article examines whether the current environment—a dovish Fed, weak labor data, and central bank gold buying—makes gold a compelling strategic allocation.

The Fed's Dovish Pivot and Gold's Appeal

The Federal Reserve's pivot toward easing has created favorable conditions for gold, a non-yielding asset that thrives when interest rates fall. As the Fed signals rate cuts to combat a softening labor market and inflation concerns, the opportunity cost of holding gold diminishes. According to a report by Reuters, gold prices have risen nearly 40% in 2025, supported by central bank purchases and declining trust in the dollarGold rallies to record high above $3600/oz as Fed rate cut ...^[1]. Goldman Sachs has warned that if Trump administration policies further undermine the Fed's independence, gold could reach $5,000 per ounce if just 1% of the U.S. Treasury market shifts into goldGoldman Sachs Warns Gold May Reach $5000 if Federal ...^[2].

The weakening dollar and falling bond yields have amplified gold's appeal. As U.S. 10-year Treasury yields hover near 3.5%, investors are abandoning low-yielding bonds for assets like gold, which offers no coupon but serves as a store of value in times of systemic riskGold prices hold near record highs as Fed rate-cut bets ...^[3]. This dynamic is reinforced by central banks: the World Gold Council reported that official sector purchases totaled 1,037 tonnes in 2023, with BRICS+ nations leading the chargeUnderstanding the Gold Price Rally: Key Drivers in 2025^[4].

Strategic Asset Reallocation: Gold vs. Bonds and Equities

In a dovish Fed environment, asset allocators are rethinking traditional portfolios. Bonds, once a cornerstone of safe-haven strategies, now face inflationary risks and diminishing returns. UBS analysts note that while U.S. Treasuries remain fairly valued, their role as a hedge is eroding due to concerns over fiscal policy and oversupplyFed's Dovish Pivot: Rate Cut Expectations Ignite Growth and ...^[5]. Short-duration bonds, however, are gaining traction as a way to capture potential rate increases while minimizing duration riskFive Charts on Why We Still Favor Gold in 2H 2025^[6].

Equities, meanwhile, present a mixed picture. U.S. large-cap stocks have hit record highs on trade optimism and fiscal stimulus, but valuations are stretched, and earnings growth is expected to lag forecastsFed's Dovish Pivot: Rate Cut Expectations Ignite Growth and ...^[5]. European equities, by contrast, offer more attractive entry points amid fiscal stimulus in Germany and improving economic momentumFed's Dovish Pivot: Rate Cut Expectations Ignite Growth and ...^[5]. Yet, both regions face headwinds from U.S. trade policies and global geopolitical risks.

Gold, by contrast, stands out as a tactical and strategic allocation. Its negative correlation with equities during market stress—demonstrated by a -0.65 coefficient during drawdowns exceeding 3%—makes it a powerful diversifierUnderstanding the Gold Price Rally: Key Drivers in 2025^[4]. Historical precedents, such as the 2008 financial crisis and the 2020 pandemic, show gold outperforming equities and private assets during periods of systemic stressRevisiting the safe haven role of Gold across time and ...^[7].

Historical Precedents and Portfolio Resilience

Past Fed rate-cut cycles provide a blueprint for current strategies. During the 2008 crisis and 2020 pandemic, gold surged as investors flocked to safe-havens amid liquidity crunches and economic uncertaintyRevisiting the safe haven role of Gold across time and ...^[7]. In both cases, the Fed's quantitative easing (QE) and rate cuts weakened the dollar, boosting gold prices. Today's environment mirrors these dynamics, with the Fed's balance sheet expansion and dovish signals creating similar conditions.

For portfolio resilience, experts recommend reducing cash allocations, which offer diminishing returns, and increasing exposure to income-generating alternatives like gold-backed ETFs, real estate, and asset-backed securitiesFive Charts on Why We Still Favor Gold in 2H 2025^[6]. BlackRock advises maintaining an overweight in U.S. large-cap equities for growth but emphasizes the need for liquidity and geographic diversification to mitigate geopolitical risksFive Charts on Why We Still Favor Gold in 2H 2025^[6].

Is Now the Time to Invest?

The case for gold is strongest for investors seeking downside protection and long-term store-of-value properties. With central banks continuing to accumulate gold and the Fed's dovish stance likely to persist, the asset's fundamentals remain robust. However, risks include a stronger dollar if inflation surprises to the upside or the Fed delays rate cuts.

For tactical allocations, gold ETFs and physical bullion offer accessible entry points, while strategic investors may consider mining equities or structured products tied to gold prices. As State Street notes, the “great repricing” of safe-havens has already begun, with gold and short-duration bonds outperforming Treasuries in stress scenariosUnderstanding the Gold Price Rally: Key Drivers in 2025^[4].