Despite gold prices consolidating after January’s sharp run-up and subsequent sell-off, analysts suggest the rally is far from over.
“Momentum may moderate from here. But the structural drivers underpinning the market remain firmly in place – and in some cases are strengthening,” Ewa Manthey, commodities strategist at ING Group, said in a report.
Gold prices have consolidated above the crucial level of $5,000 per ounce for the last one week as safe-haven demand remained elevated.
At the time of writing, gold prices on COMEX were 0.2% higher at $5,204.64 per ounce.
Experts believe that a number of factors still remain firmly in favour of further upside in yellow metal’s prices.
Central bank purchases
Demand from the official sector continues to be the primary support for the gold market.
Since the 2022 Russian invasion of Ukraine, central banks—especially those in emerging markets—have hastened their reserve diversification efforts.
This acceleration is a response to escalating sanctions risk, increased geopolitical fragmentation, and a concerted desire to lessen dependence on the US dollar.
“Crucially, this demand has proved steady and largely price insensitive,” Manthey said.
Poland, last year’s top gold buyer, plans further gold purchases, aiming for 700 tonnes, up from 550 tonnes.
This strategic accumulation, prioritising an absolute level over a fixed 30% reserve share, highlights its ongoing importance.
“First of all, it (gold) is supported by the market’s uncertainty and investors’ fears. To protect their assets, they massively turn to gold as a safe haven. The same thing is done by the world’s largest central banks,” Alex Tsepaev, chief strategy officer of B2PRIME Group, said in an emailed statement.
In January, the central bank of China continued its gold purchases for the fifteenth consecutive month.
Geopolitical tensions boost prices
Geopolitical risk has become a primary factor influencing the macro environment.
Investors face a more volatile global landscape, marked by issues such as escalating Middle East tensions and ongoing concerns over trade disputes and the possibility of new tariffs.
“The current geopolitical instability, which worsens the economic situation around the world, is also adding fuel to the fire,” Tsepaev said.
Increasing policy unpredictability, especially in trade, is causing greater volatility across various asset classes.
Consequently, demand for safe-haven assets is robustly supported.
Gold’s function as a hedge against both geopolitical and policy-related shocks is particularly relevant once more.
Potential support Fed easing its policy
“A shift in the US monetary policy backdrop could provide an additional tailwind for gold,” Manthey said in the ING report.
Despite the Federal Reserve’s continued caution, the risks are increasingly leaning towards an easing of policy, driven by cooling growth momentum and persistently normalising inflation.
“Our US economist expects the Fed to begin cutting rates in the second quarter, with policy becoming incrementally less restrictive over the coming quarters.” Manthey added.
An easing cycle, characterised by central banks cutting interest rates, typically creates a highly supportive environment for gold, Manthey said.
The primary mechanism is the lowering of real yields—the nominal interest rate minus inflation.
As real yields decline, the attractiveness of holding interest-bearing assets diminishes.
Gold, a non-yielding asset, then becomes relatively more appealing because the opportunity cost of owning it is reduced.
This shift in relative value encourages investors to allocate capital to gold, treating it as a store of value and an inflation hedge, which drives up its price.
Even small reductions in interest rates can trigger this supportive dynamic.
Renewed ETF demand
According to Tsepaev, gold exchange-traded funds (ETFs) have two main categories.
Attention should initially be focused on the most liquid instruments, such as the SPDR Gold Shares and ProShares Ultra Gold (UGL).
“Actually, this is the easiest way to invest in gold, as buying the real bullions can be costly and inconvenient – you have to store it somewhere and care for its safety,” Tsepaev added.
ETFs represent the most accessible and cost-effective investment choice, even for novice investors, according to Tsepaev.
This is due to the availability of numerous large, dependable securities with varied terms and conditions.
Investor interest in gold ETFs is reawakening, leading to renewed inflows following a period of consolidation.
Despite this recent momentum, current ETF positioning is still significantly lower than its 2020 high, suggesting substantial capacity for further investment, ING’s Manthey said.
“While central bank buying continues to anchor the market, ETFs have the capacity to amplify price moves,” Manthey said.
“If rate‑cut expectations firm or geopolitical risks intensify, a renewed wave of ETF inflows could provide another leg higher for gold prices.”
A disadvantage is that ETFs do not provide investors with direct ownership of the underlying metals, Tsepaev noted.
“However, I would not recommend exchange-traded funds with built-in leverage, as the psychological aspect of the current rally indicates a high risk of a sudden correction (which most likely wouldn’t last long for fundamental reasons).”
Dollar momentum
The dynamics of reserve evolution have shifted beyond the traditional domain of central banks.
A significant new institutional purchaser of reserve assets has emerged with the swift expansion of stablecoins backed by the US dollar.
Tether and other prominent stablecoin issuers have emerged as major purchasers of reserve assets, notably US Treasuries and, to an increasing degree, gold.
Tether acquired more than 70 tonnes of gold last year, according to ING Group.
This volume made them the second-largest reported buyer, trailing only Poland.
Cumulatively, Tether now possesses approximately 140 tonnes of gold, held across its reserves and in support of its gold-backed token.
“If gold remains part of this reserve strategy, stablecoin growth could represent an additional structural source of demand, behaving more like central bank buying than retail flows,” Manthey said.
A continuous rise in gold price is improbable. Given that prices are at record highs, real-world demand is showing increased sensitivity to cost, meaning the market should anticipate phases of leveling off or even brief pullbacks.
“However, the structural pillars of this rally – central bank diversification, geopolitical fragmentation, potential policy easing and renewed ETF interest – remain intact,” Manthey said.
“For now, the broader environment continues to favour gold.”
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