Gold prices have continued to deliver a strong performance in the first two months of the new year—having surged more than 12% year-to-date, refreshing their record high at $2,942 per ounce, and remaining close to peak levels.
The recent gold rally has been largely fueled by heightened uncertainty in global trade caused by the new U.S. administration. Additionally, strong ETF inflows and central bank purchases have further supported demand.
Forces at Play: The Key Drivers Behind Gold's Recent Rally
According to the World Gold Council's Gold Return Attribution Model (GRAM), risk and uncertainty were the biggest contributors to gold price gains over the past month. This was followed by the lagged momentum effect of the ongoing gold rally.
Furthermore, the declining opportunity cost of holding gold versus Treasury bonds has bolstered demand. While U.S. Treasury yields remained relatively flat, yields in the Eurozone trended downward.
The only factor constraining gold's rise was the lagging momentum effect of a strong U.S. dollar. However, the negative impact of the dollar's opportunity cost on gold prices, which had persisted for the past three months, turned positive in January as the U.S. dollar weakened slightly.
Tariffs, Uncertainty, and Rates: A Perfect Storm for Gold?
Looking ahead, Donald Trump's actions on tariffs will continue to shape global risk appetite. If uncertainty remains high, gold inflows are likely to be supported, suggesting that momentum effects could continue to provide a tailwind for gold's ascent.
Momentum is also being fueled by flows into physically backed gold ETFs. In January, net inflows into gold ETFs totaled $3 billion, with the most notable shift coming from Europe.
European ETF funds, which had led outflows for most of 2024, are now leading inflows—adding $3.4 billion in January, marking the largest monthly inflow since March 2022. Expectations that the European Central Bank will continue easing this year, coupled with political turmoil in the region, could further support these inflows.
On the other hand, in January, North American ETFs saw net outflows, while Asia and other regions recorded limited inflows. The outflows from U.S. ETFs were likely driven by improved risk appetite following Trump's inauguration in late January, as he initially refrained from taking immediate and aggressive action on tariffs.
However, within days, Trump began signing executive orders related to tariffs, triggering a renewed sense of uncertainty and leading to a rebound in ETF inflows—though this was not enough to fully offset January's outflows. Nevertheless, inflows likely continued in February.
Looking further into the year, if the Fed proceeds with its projected two quarter-point rate cuts, these ETF flows could gradually increase.
The Silent Accumulators: How Central Banks Are Shaping Gold Demand
Central banks were one of the key drivers of gold demand last year, and strong central bank purchases are expected to continue in 2025. As was the case last year, a significant portion of this demand may come from emerging markets seeking to bolster economic resilience amid global uncertainties.
Chasing $3,300: Can Gold Keep Its Shine
Goldman Sachs strategists have predicted that gold prices will continue rising this year, supported by central bank purchases and ETF inflows. They have raised their year-end price forecast to $3,100 per ounce. The strategists estimate that central bank demand could average 50 tons per month this year—nearly double the previous year's average of 28 tons.
Additionally, if economic and political uncertainties—particularly regarding tariffs—continue to pressure markets, gold could shine even brighter, with prices potentially reaching $3,300 per ounce by year-end. This would represent a significant 26% increase from the start of the year, though slightly below last year's annual gain.
In conclusion, the annual outlook for gold remains positive—far stronger than previously expected. However, the strength of the upward momentum will largely depend on global economic uncertainties and risk appetite. Similarly, the Federal Reserve's policy path and the strength of the U.S. dollar will likely continue to influence gold prices through opportunity costs.