Gold bull still snorting

Inflation concerns, central bank buying, and geopolitical uncertainty fuel momentum

The price of gold has experienced a historic rally in 2025, marking one of the most dramatic moves in the metal’s history as a store of value. Gold has surged more than 50% year-to-date and has gained over 125% since October 2023. Starting the year at just over US$2,600 per ounce, gold broke through US$3,000 per ounce by mid-March, and accelerated through US$3,500 per ounce in early September to reach an all-time high of nearly US$4,400 per ounce earlier this month.

So, why the big move? The primary drivers behind gold’s remarkable climb this year include a confluence of geopolitical, economic, and financial factors. Of the former, ongoing tensions across various global hotspots continue to push investors toward gold as a safe-haven asset amid uncertainty. The U.S. Federal Reserve’s monetary policy stance – with expectations for further interest rate cuts – has also fueled demand, as lower real interest rates reduce the opportunity cost of holding non-yielding gold. Additionally, a weakening U.S. dollar has supported gold’s price rise, making it more attractive for holders of other currencies. Investors and central banks alike have increased their gold holdings, with gold ETFs seeing significant inflows of about US$21 billion since August to reach a year-to-date total of US$67 billion.

While the current rally in gold price feels like an extreme, the present rally is neither overextended in terms of duration or price appreciation based on our research of four major periods of gold price rallies dating back to the 1970s (post Bretton Woods). In terms of percentage gains, the 2025 run has seen gold rise 14% just in the recent jump from US$3,500 to US$4,000 per ounce – a rapid pace akin to the acceleration seen during the 2011 peak run.

What does stand out about this cycle, however, is the speed of the rally and investor behaviour so far towards it. The pace of gold’s ascent from US$3,500 to US$4,000 in just 36 days is remarkable compared with historical milestone jumps, which often took years. Yet, despite this, total gold ETF holdings remain below their all-time peak from 2020, suggesting room for more inflows should geopolitical and economic risks persist.

Furthermore, while prior rallies were led by physical demand and speculative interest, this current phase is heavily influenced by portfolio diversification and risk hedging amid fears of equity market corrections, rising public debt, and continued global policy uncertainty.

Central bank gold buying surged to record levels starting in 2022, with central banks globally purchasing over 1,000 tonnes annually – the highest since 1967. This surge reflected a strategic shift driven by the desire to reduce reliance on the U.S. dollar, protect against inflation and currency devaluation, enhance financial stability amid geopolitical uncertainties, and resist sanctions risks. With the recent price run in gold, IMF data indicate that central bank reserves now exceed their U.S. Treasury holdings for the first time since 1996.

However, in 2025, there has been a notable pullback in central bank buying momentum. Recent data show monthly net purchases moderating, with some months witnessing tactical selling or reduced accumulation. Still, the outlook remains bullish, with central bank survey respondents overwhelmingly (95%) believing that global central bank reserves will increase over the next 12 months. A record 43% of respondents also believe that their own gold reserves will increase over the same period.

In contrast, retail interest globally via gold ETFs has seen robust inflows in 2025, fueled by the soaring gold price rally and investor interest in gold as an inflation hedge and safe haven. ETF inflows have often spiked following market volatility and geopolitical tensions, reflecting strong retail appetite even as official sector demand showed some moderation. This dynamic illustrates a divergence where official gold buyers become more price-sensitive amid lofty prices, while retail investors capitalize on the strong bullish price trend via ETFs.

Granted, the recent pullback in the gold price from the highs achieved on October 20 may also be part and parcel of that dynamic. After gold surged more than 60% year-to-date and hit record highs around US$4,381 per ounce, some investors engaged in profit-taking, selling to lock in gains from the historic rally. Along with gold, silver and platinum prices also saw sharp declines amid a multivariate selloff and risk reassessment. This combination of profit-taking, macroeconomic factors, and technical selling drove gold prices down sharply on and following October 17, with declines of 5%-8% reported in a short span from the peak levels.

Ultimately, we believe that a period of consolidation above US$4,000 per ounce would be a positive sign for gold. The underlying bullish trend is viewed as intact given the persistent inflation concerns, central bank gold buying, and geopolitical uncertainties supporting gold’s long-term appeal.

John Kratochwil, MBA, P.Eng., is Senior Analyst at AGF Management Ltd. specializing in the Materials (ex-Chemicals) and Real Estate sectors.

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