Gold has taken centre stage in 2025, breaking through the US$4,000 per ounce mark in October – signalling a year-to-date gain of over 50% and a 20% rise since mid-year.
This extraordinary rally is more than just a reaction to global uncertainty; it’s the result of deep structural shifts in how investors view gold’s role in their portfolios.
For portfolio construction, gold serves as both a tactical hedge against near-term policy uncertainty and a strategic diversifier against long-term currency debasement risks. The precious metal's performance in 2025 validates its role as a monetary asset in an environment where confidence in key currencies, particularly the USD, continues to erode.
Why is Gold Soaring?
- Massive ETF and Central Bank Buying
Exchange Traded Funds (ETFs) have poured approximately 600 tonnes into gold this year, reversing previous outflows and marking one of the largest inflow periods on record. Central banks, especially in China and Poland, are also stockpiling gold to hedge against economic and policy risks.
- Macro Tailwinds: Inflation, Debt, and Rate Cuts
Persistent inflation, rising government debt, and expectations of lower interest rates have created a perfect storm for gold. The US Federal Reserve is expected to cut rates five more times by the end of next year, making gold more attractive compared to other assets. Historically, gold prices rally after rate cuts, and this year is no exception.
- Weakening US Dollar
Gold’s strong inverse relationship with the US dollar has been a key driver. As the dollar weakens, gold shines brighter, especially in what Morgan Stanley calls the “USD Bear Regime” - a period marked by lower real rates and rising inflation expectations.
- Fiscal Deterioration and Currency Debasement
The US national debt has surpassed US$37 trillion, raising concerns about long-term fiscal sustainability. Moody’s downgraded US debt in May 2025, and investors are increasingly wary of currency debasement and “de-dollarisation.” Gold is now seen as a strategic alternative to traditional safe havens like US Treasuries.
- Geopolitical Uncertainty
Ongoing conflicts and unpredictable trade policies have kept demand for gold high as a safe-haven asset. Even temporary events, like the partial US government shutdown in October, have added fuel to the rally.
What’s Next for Gold?
Morgan Stanley ranks gold as its top commodity pick, forecasting a further 15% rise by Q3 2026 and a price target of US$4,500/oz in the second half of 2026. In a bullish scenario, prices could even exceed US$5,000/oz next year. However, risks remain: a global recession, weaker demand from China, or a strengthening US dollar could temper gold’s ascent.
Gold’s stellar performance in 2025 reflects deeper changes in the global financial system. As confidence in major currencies erodes and central banks diversify, gold’s role as a strategic hedge and portfolio diversifier is more important than ever. For investors, gold offers both protection against uncertainty and a way to benefit from ongoing macroeconomic shifts.
