Gold’s price action offers significant insights into the global economy and financial markets, demonstrating that it is more than merely a safe haven asset, according to Amy Gower, Metals & Mining Commodity Strategist at Morgan Stanley.
“Gold has always been the go-to asset in times of uncertainty,” Gower was quoted in a Kitco.com report.
But in 2025, its role is evolving. Investors are watching gold not just as a hedge against inflation, but as a barometer for everything from central bank policy to geopolitical risk.
Fluctuations in gold prices frequently indicate significant underlying shifts, she said.
Gold’s impressive rise of over 38% and silver’s surge of more than 42% this year clearly indicate significant market activity. Gower attributes this rally to several crucial factors.
Key drivers behind gold’s rally
Central banks are continuing their strong gold buying trend, with gold now making up a larger portion of central bank reserves than treasuries for the first time since 1996, Gower said.
This demonstrates strong confidence in gold’s long-term value.
Additionally, gold-backed Exchange-Traded Funds (ETFs) experienced $5 billion in inflows during August alone, with year-to-date inflows being the highest on record outside of 2020, indicating renewed interest from institutional investors, according to her.
“With inflation still above target in many major economies, gold’s appeal has been surprisingly resilient despite being a non-yielding asset,” she added in the Kitco report.
And investors are betting that central banks may soon have to cut rates, which could further boost gold prices.
Morgan Stanley’s forecast, according to Gower, predicts a 5% increase in gold prices for 2025, reaching a peak of $3,800 per ounce by the end of the year.
Outlook and market dynamics
However, Gower pointed out that it is still uncertain how jewellery demand will evolve, given that it accounts for 40% of overall gold consumption.
Gower noted a decline in jewelry demand for precious metals, attributing it to weakening consumer interest.
She pointed out that “second-quarter gold jewelry demand was the worst since the third quarter of 2020,” a direct consequence of high prices.
Despite this, gold maintained its gains from January to April. Silver also saw continued growth, largely fueled by robust demand from the solar industry.
For several months, both metals lacked catalysts for further gains. However, they are now set to benefit from projected Fed rate cuts.
Gold will become more affordable globally due to a predicted weakening of the US dollar, according to Morgan Stanley’s currency strategists.
Gower highlighted that India’s gold and silver imports had already begun to improve in July.
“The country is looking also to reform its Goods and Services tax, which could free up purchasing power for gold and silver ahead of festival and wedding season.
Gower stated that their outlook for both gold and silver remains positive, adding that gold tends to outperform after Federal Reserve rate cuts, leading them to prefer gold over silver.
At the time of writing, gold prices on COMEX were 0.6% higher at $3,694.97 an ounce.
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