Gold rally expected to continue amid uncertainty

The continuing rally in spot gold prices underscores the surging demand for safe-haven assets amid widespread global economic uncertainty and geopolitical tensions, and despite the possibility of a near-term correction, analysts expect gold's upward momentum to persist.

On Wednesday morning, London spot gold broke above $4,170 per ounce, while COMEX gold futures traded above $4,190 per ounce, both up by about 59 percent since the beginning of the year.

According to the World Gold Council, central banks purchased 415 metric tons of gold in the first half of 2025 and global gold exchange-traded funds recorded their largest monthly inflow in September.

China's official gold reserves stood at 74.06 million ounces at the end of September, marking 11 consecutive months of increase.

According to Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, the continuing gold accumulation by the People's Bank of China, the country's central bank, is largely due to political and economic shifts that have taken place since the return of the Donald Trump administration in the United States, which have increased the possibility of gold prices remaining elevated for an extended period. This in turn has heightened the need to optimize China's reserve structure by holding more gold.

As of September, gold accounted for 7.7 percent of China's official reserve assets — well below the global average of around 15 percent — suggesting that there remains room for further increases, said Wang.

David Chao, global market strategist for the Asia-Pacific region (excluding Japan) at investment management company Invesco, said the surge in gold prices not only reflects its robust performance but also serves as a warning signal amid US policy turbulence. Some market participants feel this phenomenon reflects concerns about the stability of the US dollar in the current macroeconomic and policy landscape.

Ken Griffin, founder and CEO of Citadel, one of the world's leading alternative investment companies, said in a recent interview with Bloomberg that investors are starting to consider gold a safer asset than the dollar. Griffin said substantial asset inflation away from the dollar is being seen as people seek to de-dollarize or de-risk their portfolios against US sovereign risk.

On Monday, Bank of America raised its 2026 gold price forecast to $5,000 per ounce, with an average of $4,400. The bank said in a note that the White House's unorthodox policy framework would be supportive for gold given fiscal deficits, rising debt, intentions to reduce the current account deficit/capital inflows, and a push to cut rates with inflation around 3 percent.

The current gold rally began in August, when US Federal Reserve Chair Jerome Powell signaled a willingness to cut interest rates. Between Aug 27 and Oct 8, London spot gold prices climbed from $3,376 per ounce to $4,040, an increase of 19.7 percent.

Analysts attribute the sharp rise to several combined factors: ongoing expectations of US Federal Reserve rate cuts, renewed geopolitical tensions, short-term market volatility triggered by the US government shutdown, political uncertainty in Japan, and sustained gold purchases by global central banks.

A recent report by CITIC Securities chief economist Ming Ming and analysts Yu Jingwei and Chen Bingcheng noted that the gold rally over the past month had exceeded market expectations, driven by a confluence of macroeconomic and geopolitical factors.

The analysts pointed out that expectations for US Federal Reserve rate cuts have strengthened faster than anticipated, with markets now fully pricing in three cuts in 2025. Meanwhile, there is renewed risk aversion following the US government shutdown on Oct 1 — the first in nearly seven years — after lawmakers failed to reach an agreement to extend funding. Unlike previous episodes, this closure is expected to be prolonged, amplifying uncertainty and channeling more funds into safe-haven assets such as gold.

At the same time, persistent geopolitical tensions are further underpinning demand. Although the Trump administration recently brokered a cease-fire in Gaza, speculation that Washington may consider military action against Venezuela under the pretext of counternarcotics operations has added another layer of instability to global markets.

"In the short term, gold's rapid ascent has likely been fueled by heightened risk-aversion sentiment," the report said. "As these emotional drivers fade, the sharp upward momentum may pause. Nevertheless, structural factors such as the worsening US federal debt situation, waning confidence in the dollar, robust central bank gold purchases, and a gradual shift toward looser US monetary policy have continued to underpin the gold market since last year."

The CITIC Securities analysts forecast that under a baseline scenario, gold prices could exceed $4,500 per ounce by March 2026.

Given the scale and speed of this year's rally, short-term volatility may rise, yet the UBS Chief Investment Office believes that the rally has room to continue, supported by both fundamentals and momentum.