The logic behind gold price increases: Is there still room for growth in the gold market in 2025?

By the end of 2024, the gold market has become a focal point for investors worldwide. After gold prices surged past a historic high of $4,400 per ounce in October and then pulled back, many retail investors began to wonder: Has the momentum of this gold rally already come to an end? Is it too late to enter now?

To answer this question, we first need to understand the fundamental drivers behind the rise in gold prices. Only by grasping the logic behind price fluctuations can we better judge the future market trend.

The Three Main Drivers Behind the New Highs of Gold XAUUSD

Gold has performed exceptionally well over the past two years, especially during 2024–2025, reaching levels not seen in nearly 30 years, surpassing the 31% increase in 2007 and the 29% in 2010, both historic records. This rally is not without cause; three core forces are pushing it forward.

First, increasing US policy uncertainty

Since the new government took office, a series of tariff policies have been introduced, directly triggering risk aversion in the markets. Whenever policy outlooks are uncertain, investors tend to flock to traditional safe-haven assets like gold. Historical experience shows that during periods of similar US-China trade frictions in 2018, gold prices typically rose by 5–10% amid policy uncertainties. Currently, the political and economic environment is similarly uncertain, with risk sentiment clearly heightened.

Second, market expectations of Federal Reserve interest rate policies

The Fed’s rate cut cycle has the most direct impact on gold prices. Lower interest rates weaken the US dollar, reducing the opportunity cost of holding gold, thus increasing its attractiveness. The underlying logic is a simple formula: Real interest rate = Nominal interest rate − Inflation rate. When real interest rates decline, non-yielding gold becomes more competitive.

Interestingly, after the September FOMC meeting, gold prices briefly fell because the Fed’s 25 basis point rate cut was fully in line with market expectations and had been priced in advance. Additionally, Powell described this rate cut as a “risk management” move rather than a signal of prolonged easing, which cooled market optimism about subsequent rate cuts.

According to the latest CME interest rate tools data, the probability of the Fed cutting rates by 25 basis points at the December meeting is as high as 84.7%. Such data serve as important references for judging the future trend of gold prices.

Third, ongoing central bank gold purchases worldwide

Data from the World Gold Council show that in Q3 2025, global net gold purchases by central banks reached 220 tons, a 28% increase quarter-over-quarter. In the first nine months, total gold purchases amounted to about 634 tons, slightly below the same period in 2024 but still well above historical averages. This not only reflects the importance placed on gold reserves by various countries but also signals concerns about the US dollar’s outlook.

In its June report on central bank gold reserve surveys, 76% of surveyed central banks indicated they would “moderately or significantly increase” their gold holdings over the next five years, while most expect the “US dollar reserve ratio” to decline. This shift profoundly reflects the long-term trend in international reserve asset allocation.

Invisible Factors Amplifying the Gold Rally

Beyond these three main drivers, changes in the global economic and financial environment continue to boost gold’s appeal.

High debt levels and limited monetary policy space

By 2025, global debt has reached $307 trillion. High debt levels mean central banks have limited room to adjust interest rates, and prolonged monetary easing tends to lower real interest rates, indirectly pushing up gold prices.

Eroding confidence in the US dollar

When the dollar faces depreciation expectations or market confidence wanes, gold, as a dollar-denominated asset, benefits and attracts global capital inflows. This is a classic risk-hedging logic: when traditional reserve currencies lose appeal, assets like gold, which transcend national credit, become the best choice.

Persistent geopolitical risks

The ongoing Russia-Ukraine war, conflicts in the Middle East, and other geopolitical events continue to elevate safe-haven demand for precious metals, often causing short-term volatility and capital inflows.

Community sentiment and short-term capital effects

Continuous media coverage and emotional resonance on social platforms generate large amounts of short-term capital inflows into the gold market at no cost. This herd mentality has recently caused wave after wave of price increases.

It’s important to note that these short-term factors may trigger intense volatility, but they do not necessarily indicate a long-term trend continuation. For investors, currency-denominated gold also involves exchange rate risks.

How Do Institutions View the Future of Gold?

Despite recent fluctuations, mainstream investment institutions remain optimistic about its long-term prospects.

JPMorgan’s commodities team considers this correction a “healthy adjustment,” warning of short-term risks but still bullish on the long-term outlook, raising their Q4 2026 target price to $5,055 per ounce.

Goldman Sachs remains confident in gold’s prospects, maintaining a target of $4,900 per ounce by the end of 2026.

Bank of America is the most aggressive, first raising their 2026 target to $5,000 per ounce, and later strategists further suggested that gold could break through $6,000 next year.

Domestic well-known jewelry retailers like Chow Tai Fook and Luk Fook Jewelry continue to quote gold jewelry prices above 1,100 RMB per gram, with no significant decline observed.

What Are Retail Investors’ Options at This Stage?

After understanding the logic behind the gold rally, the core question for investors is: What should I do now?

First, it’s clear that this gold rally is not over. Opportunities still exist for both medium- and long-term positioning and short-term trading. The key is to develop strategies based on your risk tolerance and trading experience.

For experienced short-term traders: Volatile markets offer frequent buying and selling opportunities. The liquidity of the gold market makes it relatively easy to judge short-term directions, especially during sharp rises or falls, where bullish and bearish forces are clear. Traders accustomed to quick entries and exits can more easily ride the wave.

For novice investors: The temptation is greatest, but so are the risks. Blindly chasing highs, buying at peaks, or selling at lows can easily destroy beginners’ confidence and capital. It’s recommended to start with small amounts to test the waters, observe, and learn the market rhythm rather than rushing to add positions. Tracking US economic data releases via economic calendars can help optimize entry timing.

For those wanting to allocate physical gold: Long-term holding aligns with gold’s investment logic, but only if you can withstand potential sharp fluctuations. While the long-term outlook is bullish, you need to consider whether you can psychologically endure 10–20% short-term corrections.

For asset allocators: Gold can indeed diversify risk within a portfolio, but remember that gold’s annual volatility is 19.4%, even higher than the S&P 500’s 14.7%. Putting all your assets into a single asset is not wise; diversification remains the right approach.

For yield-seeking traders: Consider leveraging short-term volatility on top of long-term holdings. Especially around key economic data releases, volatility tends to increase, providing trading opportunities. Of course, this requires good risk management skills.

Final Risk Reminder

Before entering gold investments, several important realities must be acknowledged:

First, gold’s volatility is not gentle. An average annual amplitude of 19.4% means it’s not an asset you can simply “sit back and win.”

Second, gold’s investment cycle is extremely long. Over a ten-year holding period, doubling or halving your investment is possible, and the psychological challenge should not be underestimated.

Third, physical gold trading costs are relatively high, generally between 5–20%, which directly eats into your expected returns.

Finally, and most importantly: Do not put all your chips into gold. Although the outlook for gold prices is optimistic, it remains just one part of a diversified investment portfolio.