By Kiran Kowshik, Global FX Strategist & Luca Bindelli, Head of Investment Strategy
CIO Office Viewpoint – 11.09.2025
Key takeaways
- Gold prices have set new records amid a narrative of increasing market risks, including inflationary concerns, rising government debt and slowing US growth
- Investor positioning has also lightened up after May, and increased demand amid still constrained supply should add to upward pressure on prices
- The move could extend towards USD 3,600-3,800 per ounce over the coming months. We raise our 12-month target to 3,900 USD/oz
- Gold retains its diversification properties in multi-asset portfolios, and we keep our allocations at neutral levels versus our strategic benchmark for now.
After trading in a USD 3,250-3,450/oz range for the past four months, the gold price has hit a new record high in recent weeks. We see prices being supported for the remainder of 2025.
Gold has set a series of new all-time highs this year, with a record USD 3,562/oz price on 3 September reflecting a shift in market sentiment. The drivers of the recent rise include concerns around tariff-induced inflation and a slowing US economy, a steepening in developed market bond yield curves and a weaker dollar. Long-dated bond yields have been rising for different reasons in different countries, but include fiscal sustainability concerns across the US, Japan, France and the UK. Most recently, concerns about threats to the Federal Reserve’s independence also provided support to the yellow metal.
Is gold’s rise sustainable?
We think the arguments in favour of continued gold price strength look compelling. First, the stagflation narrative will likely support prices for the remainder of the year. Gold tends to do well when investors fear inflationary or ‘stagflationary’ scenarios, including episodes of perceived constraints on the ability of central banks to contain price pressures. Such concerns are likely to persist as the US economy slows and the impact of tariffs filters through more fully into US prices in the months ahead.
However, gold has already rallied substantially – over 50% in fifteen months, and further large gains may prove arduous. The last time the yellow metal saw such sustained and accelerated gains was in the 1970s, a period which was marked by above target inflation and soaring inflation expectations (see chart 2). From the end of the Bretton Woods system in 1971 until 1980, gold prices increased eleven-fold. At the time, the US core personal consumption expenditure (PCE) inflation index, the Federal Reserve (Fed’s) preferred metric at present, rose from 3.5% to 8%. That period was marked by concerns over the Fed’s credibility in taming inflation.
While we do not anticipate a similar scenario today, there are some echoes of that period. The Fed’s independence seems challenged by the US administration’s efforts to change the make-up of the central bank’s board governors. While we believe inflation expectations will remain anchored, we expect the core PCE index to rise temporarily above 3% until the second quarter of 2026.
Ironically, in higher inflation regimes (when US inflation was above 3%), the behaviour of gold changed as its correlation with sovereign bond yields turned from its usual negative pattern to a positive one. We have observed this dynamic in recent months, with gold posting gains while prices of longer-dated sovereign bonds fell (see chart 3). Expectations of imminent rate cuts by the Fed have lowered short-dated yields, while tariff-induced inflationary concerns and threats to Fed independence have lifted longer-dated bond yields.
The emergence of this correlation means that the price of gold should be supported in the coming months.
Strong demand is another reason prices could stay high. Gold supply, including mining and sales of existing above-the-ground stock, tends to be stable and less sensitive to the evolution of prices. On the demand side, heavier regulation in gold holdings in China and India, two major demand hubs, limits the degree to which these countries will sell back gold to the international markets to ease tight supply. This leaves central banks and private investors as potential marginal providers of additional supply, but they may be unwilling to part with their gold holdings given inflation concerns.
We also note a reduction in speculative positions after April, suggesting that there may be appetite for investors to add further support for gold. The swing factor in gold prices this year has been flows from exchange-traded funds, particularly in Asia. However, there are signs of momentum in flows picking up once again, which could remain supportive of further price gains in the months ahead.
Finally, from a technical standpoint, breaks out of a trading range tend to be significant, and we think that the current momentum can build, despite some possible near-term setbacks due to currently overbought conditions.
For all these reasons, we expect gold to progress towards USD 3,600-3,800 per ounce in the coming months, and we raise our 12-month target to USD 3,900/oz.
Gold in a portfolio context
Of course, investors should always think about gold in terms of overall portfolio allocations. The backdrop still looks solid for a range of risk assets. In our base case scenario of a global soft landing – with a slowing US economy but no recession – we expect corporate earnings to remain in positive territory, supporting equities. Within equities, we favour emerging markets, where earnings prospects are stronger and valuations lower than those in developed markets. We also remain overweight in investment grade corporate bonds given still-strong corporate fundamentals.
We continue to value gold’s role within portfolios as a diversification and risk hedging tool, and as a complement to other exposures in an environment that we believe still favours balanced investment risk-taking. We first took profits on our then-overweight position in gold in March, lowering exposures to underweight in May, as we expected buoyant equity markets to surpass returns on the non-yielding asset. We raised our exposures in July and for now, we keep them in line with our strategic asset allocation levels.