The gold price this year
After hitting a record high above $3,500/oz in April, gold has traded within a tight range
Gold is one of the strongest-performing major commodities, up by more than a quarter this year amid Donald Trump’s aggressive trade policy, conflicts in the Middle East and Ukraine, and central bank buying.
Most of gold’s gains took place in the first four months of the year. After hitting a record high above $3,500/oz in April, it has traded within a tight range over the past few months, failing to break above that level again. However, with US rate cuts bets intensifying, gold could be poised for another fresh record high.
Fed rate cut speculation intensifies
With both US growth and inflation worsening, traders are now pricing in a 93% chance that the US central bank will lower interest rates when it reconvenes next month. The expectation follows a weaker-than-expected jobs report last week.
The US added 73,000 jobs in July while the prior month’s data was revised down by nearly 260,000. Trump fired the head of the agency hours after the report sent market tumbling. This further fuelled rate cut bets.
Our US economist now expects three cuts for the rest of this year and another two in early 2026, which is more aggressive than markets are pricing.
There's something else boosting gold's safe-haven appeal, and that's what's actually going to happen to the Fed committee. Governor Adriana Kugler's resignation earlier this week could give President Trump the opportunity to appoint someone more in tune with his rate-cutting agenda. Of course, he's no fan of Chair Powell, and his term ends next May. It's all adding to fears about the Fed's independence, all the time boosting the gold price.
Lower interest rates typically boost gold, which doesn’t pay interest, compared to other assets.
Central bank buying remains firm
Another key driver of gold's rally, central bank buying, remains solid.
In the second quarter of this year, central banks added 166 tonnes to global official gold reserves, according to data from the World Gold Council. Once again, the National Bank of Poland was the largest buyer, adding 19 tonnes to its gold reserves in 2Q, although lower than its buying in 1Q at 49 tonnes. Polish official gold holdings now total 515 tonnes, or 22% of total reserves.
However, 2Q buying was 33% lower quarter on quarter, and it was the second consecutive quarter during which demand has slowed, with gold’s price rally this year likely contributing to this slowdown.
In June, central banks reported 22 tonnes of net purchases, a month-on-month increase for the third consecutive month. The Central Bank of Uzbekistan was the largest buyer during the month, having added 9 tonnes.
Looking ahead, we believe central banks will continue to add gold to their reserves given the still-uncertain economic environment and the drive to diversify away from the US dollar.
China buys more gold
China’s central bank also continues to add gold to its reserves. The People’s Bank of China increased its gold reserve in July, for the ninth straight month in a row. Gold held by the central bank increased by 60,000 troy ounces to 73.96 million troy ounces last month, bringing the total tally of purchases since November, when the current run of buying began, to around 36 tonnes.
ETFs see more inflows
Gold-backed ETFs saw strong investment in 2Q, with high demand in April and June outweighing a small dip in May, leading to a net increase of 170 tonnes in global holdings, according to the WGC data.
Together with the 227 tonnes of demand in 1Q, ETFs had a very strong first half of the year. Demand was positive across all regions, leading to a 397-tonne increase in global holdings. This was driven by surging gold prices, geopolitical tensions and concerns about rising inflation.
There is still room for further additions, given the current total remains shy of the peak hit in 2020.
Further room to run
Central banks are still buying, Trump’s trade war is still going on, geopolitical risks remain elevated, and ETF holdings continue to expand – all underpinning gold prices at the current levels. The Fed cutting rates could be the catalyst that has been missing to reignite that record-breaking rally once again.
We have revised our gold forecast higher. We now expect prices to average $3,400/oz in 3Q and $3,450/oz in 4Q, bringing this year’s average to $3,250/oz.
