Gold prices are poised for continued strength in the second half of 2025, supported by a weaker U.S. dollar, geopolitical tensions, and robust central bank demand, though trade policy developments could trigger volatility, according to the World Gold Council’s (WGC) mid-year outlook.
Spot gold, having gained 26% year-to-date to trade around $3,340/oz, shows signs of consolidation after its stellar first-half performance. The WGC identifies three key drivers behind the rally: a 7% depreciation in the U.S. dollar index; escalating Middle East tensions and central bank purchases totaling 1,045 tonnes in the first five months.
However, momentum has moderated in Q2, with gold ETF inflows slowing and COMEX net long positions retreating 12% from April peaks, signaling profit-taking behavior.
“Gold needs fresh catalysts to break out of its $3,250-$3,500 range,” said Ewa Manthey, ING’s Commodities Strategist. “A collapse in U.S.-EU trade talks and the potential activation of 30% tariffs on August 1 could propel prices to new records.” Recent price action underscores the battle between bulls and bears, with gold failing three times to sustain gains above $3,365/oz.
Central banks remain the bedrock of gold demand, with the WGC’s 2025 survey revealing 43% of central banks plan to increase reserves, 95% expect global official holdings to grow.
Notably, the People’s Bank of China added 70,000 ounces in June, marking an eighth consecutive month of accumulation totaling 34.2 tonnes since November 2024.
Yet purchasing patterns are evolving. May’s net central bank buying of 20 tonnes fell below the 12-month average of 27 tonnes, with emerging market banks like Kazakhstan (+7t) and Turkey (+6t) leading while Singapore (-5t) reduced exposure. ING attributes this divergence to varying risk appetites for dollar assets, noting annual central bank demand has doubled to over 1,000 tonnes since the Ukraine conflict.
The WGC outlines potential trajectories:
Base Case (45% probability): Moderate global slowdown pushes gold 5% higher to $3,500
Risk Case (30%): Geopolitical crises with stagflation could drive 15% gains
Optimistic Case (25%): Trade détente might trigger a 17% correction
Physical demand signals caution, with Indian jewelry consumption down 9% YoY in Q2 due to high prices, while recycled gold supply surged 23%, partially offsetting mine production shortfalls.
Analysts advise investors to monitor event-driven opportunities (U.S. tariffs, Middle East tensions), while maintaining exposure via gold ETFs/mining stocks for portfolio diversification
Technically, a decisive break above $3,500 is needed to confirm the next leg higher, with $3,200 acting as key support. As Manthey observes, “Gold resembles a coiled spring—any deterioration in trade wars could unleash the next rally.”
