Will gold's bull run continue after 26% surge in first half?

16/07/2025 01:37 AST

Gold surged 26 per cent in the first half of 2025, outperforming all major asset classes and recording 26 new all-time highs in dollar terms.

Fuelled by a weaker dollar, stable interest rates, and intensifying geopolitical tensions, the precious metal reaffirmed its status as a safe-haven asset amid rising global uncertainty.

According to the World Gold Council's mid-year outlook, gold's rally in the first half was supported by an exceptional mix of macroeconomic conditions: softening US Treasury yields, expectations of monetary easing, and the worst start for the US dollar since 1973. In tandem, investors sought refuge in gold as trade frictions, inflationary pressures, and global market volatility persisted.

Global gold exchange-traded funds (ETFs) saw a sharp resurgence, with total holdings rising by 397 tonnes - equivalent to $38 billion - bringing total assets under management to $383 billion, a 41 per cent increase. Average daily gold trading volumes also hit a record $329 billion, reflecting robust participation from institutional and retail investors across over-the-counter (OTC), futures, and ETF markets.

Central banks continued their strategic gold purchases, albeit below the record-setting levels of 2022 and 2023. Their sustained accumulation - a hedge against currency volatility and economic instability - reflects a broader shift away from dollar-dominated reserves.

The WGC's Gold Return Attribution Model has identified three primary drivers behind the first-half rally:

First, opportunity cost (7 per cent of gold's return): Gold became more attractive relative to the weakening dollar and subdued bond yields, which offered little incentive to hold fixed-income assets.

Second, risk and uncertainty (4 per cent): Rising geopolitical tensions - particularly around US-China relations and tariff threats - as well as broader economic fragility drove safe-haven flows.

Third, momentum (5 per cent): Positive ETF inflows and trading activity created a feedback loop, amplifying gold's upward trajectory.

The WGC analysts, looking to the second half of 2025, predicts that the gold market faces a pivotal juncture. Under current consensus expectations, gold is likely to remain rangebound, with potential upside of 0 to 5 per cent, which would translate into a full-year return of 25 to 30 per cent.

"Gold appears to have priced in much of the current macro landscape," the report notes. "But the path ahead depends heavily on how economic conditions evolve, particularly in the face of persistent inflation and trade-related uncertainties."

Inflation is expected to pick up in H2 due to global tariff increases, with US CPI forecast to reach 2.9 per cent. Central banks, particularly the US Federal Reserve, are anticipated to begin a cautious easing cycle in the final quarter, with a 50-basis-point rate cut priced in. These factors could help sustain investor interest in gold.

However, rising prices may weigh on consumer demand and spur more recycling, potentially capping further upside. While institutional and central bank appetite is likely to stay firm, ETF and futures positions are not yet overstretched - suggesting room for renewed buying should risk sentiment sour.

WGC's bullish case envisions deteriorating economic and financial conditions, such as stagflation or a full-blown recession. In this scenario, gold could rise another 10 to 15 per cent in the second half, ending the year nearly 40 per cent higher.

"Such an environment would likely spur further flight-to-safety flows, higher ETF inflows, and accelerated central bank diversification away from the US dollar," the report says.

Gold ETFs, for instance, have accumulated just over 500 tonnes in the past year - significantly below the 700 to 1,100 tonnes amassed during past bull cycles. COMEX net long positions remain below historical peaks, reinforcing the notion that the market is not yet overbought.

Conversely, a more optimistic geopolitical and economic outcome - though seen as less probable - could pressure gold. A resolution of key trade disputes, stronger global growth, and rising yields would curb demand for safe-haven assets. Under this scenario, gold could give back 12 to 17 per cent of its H1 gains, ending the year with modest single-digit returns.

Higher Treasury yields and a rebounding dollar would elevate the opportunity cost of holding gold, triggering ETF outflows and reducing central bank buying. Still, any downside may be cushioned by renewed consumer interest at lower prices and a pullback in recycling.

Yellow metal analysts argue that as the global macro and geopolitical landscape continues to evolve, gold remains uniquely positioned to serve as both a tactical and strategic asset. Its strong first-half showing underscores investor demand for portfolio protection and diversification amid heightened uncertainty. Ultimately, they contend that as central banks adjust policies and geopolitical dynamics unfold, gold's fundamentals - supported by broad institutional interest, resilient central bank demand, and constrained supply - remain solid. Whether consolidating or surging anew, gold continues to prove its worth in a rapidly shifting global order, they noted.

While consensus forecasts suggest a stable but modestly positive outlook for the rest of 2025, any deviation from these expectations - particularly toward stagflation or geopolitical escalation - could reignite a strong upward push. On the flip side, resolution of global conflicts and economic acceleration could temporarily weaken gold's allure, they said.

Khaleej Times