Gold 2025 Midyear Outlook: A High(er) for Long(er) Gold Price Regime

Lingering Liberation Day Impact May Drive Gold ETF Demand

Global trade policies are front-and-center for gold investors, although, interestingly, gold price returns in 1Q prior to Liberation Day were the strongest since 1986.⁴ Fundamentally, increased investor demand for gold ETFs tightens physical balances. This then requires higher gold prices to ration other pockets of consumption or to incentivize a gold scrap response to increase supply.⁵

The return of financial inflows, particularly from Western gold ETF investors, represents the largest potential annual growth in gold demand for 2025, laying the foundation for prices to scale $3,500-$3,900/oz in our bull case scenario.

Fluid trade policy may be a factor driving those flows; investors don’t know the timing or ultimate end game of tariffs, which stokes volatility. We don’t pretend to have a definitive answer either, but we do think it’s likely that the Trump administration’s geoeconomic policy could benefit gold, as governments and investors question US financial, economic, and currency dominance.

As the highly uncertain US-Sino/US-World trade policy and geopolitical outlook continue to evolve, we frame five themes we expect will support a bullish gold price environment.

1. Gold ETF inflows have potential to increase. Coming off a 3.5-year de-stocking cycle from end-2020 to mid-2024, investors have plenty of room to expand gold ETF holdings. Despite strong inflows year to date (Figure 2), physically backed gold ETF worldwide tonnage is still down ~20% from the 4Q’20 peak.⁶
2. China’s gold consumers rebound. Retail gold imports were sluggish into China in 1Q’25 as high prices dented purchases.⁷ However, onshore gold price premiums have spiked since Liberation Day,⁸ likely foreshadowing a decent sequential rebound in local gold demand. The government in China is also supporting policies to enhance gold investment in non-traditional sectors like insurance firms. (See APAC section below)
3. Official sector gold demand likely to stay strong. We expect 2025 will be the 16th year post-Global Financial Crisis of net gold buying for the sector. Central bank gold demand helps to dampen downside price volatility and support a higher price floor. Official institutions also tend to be price inelastic strategic buyers.
4. Alternative-fiat demand and global debt support higher gold prices. Global sectoral debt crossed a record US$324 trillion in 1Q’25 with nearly 30% on government balance sheets, an all-time high (Figure 3).⁹ Unlikely to be resolved in the near term, record debt supports a high gold price regime.
5. Fed still poised to cut rates. While it may be only one or two 25 basis point rate cuts in 2025, we think that will likely incrementally benefit gold via the real rates and duration channel (though that relationship has not been strong in recent years). But with nearly US$7 trillion parked in money market funds,¹⁰ lower short-end rates should help a zero-coupon asset like gold.

From Rate Easing Cycle to Delicate Pause Amid US Fiscal Anxiety

At midyear, it’s clear that rate hikes are firmly off the table but so is an aggressive Fed easing campaign. The Fed has not lowered rates since December 2024, making this the longest pause of the current cycle. Historically, gold has outperformed during these Fed pauses as financial conditions appear tight, growth stalls, and uncertainty mounts.

Throughout the past three business cycles, extended pauses in Fed rate-cutting campaigns have consistently coincided with periods of strong gold performance that outpace the S&P 500 Index (Figure 4). In late 2002 through mid-2003, during the longest pause of that easing cycle, gold rose 13% while the S&P 500 Index gained 4%.¹¹ In 2008, amid extraordinary financial stress, gold was flat during the Fed’s pause while the S&P 500 Index dropped 15%.¹² And during the Fed’s pause from late 2019 through February 2020, just before the pandemic, gold posted a 7% gain, while the S&P 500 Index declined by 2%.¹³

This year, we find ourselves at a similar inflection point.

Gold has rallied 25% while the S&P 500 Index is flat since the last rate cut in December.¹⁴ Even if there are fewer rate cuts than initially anticipated, the policy trajectory still favors easing. When monetary conditions eventually loosen, gold likely stands to benefit. Investors can view the current Fed pause as a potential opportunity to add strategic, long-term gold exposure.

US Debt Downgrade, Fiscal Uncertainty Highlight Gold’s Benefits

The US government deficit is projected at 6-7% of GDP while the economy is operating at full employment, a situation that is unprecedented during peacetime.¹⁵ With US$34 trillion in federal debt and annual interest cost moving toward US$1 trillion,¹⁶ investors are increasingly questioning the sustainability of US fiscal policy. This concern has moved beyond academic debate. On May 16, Moody’s became the third of the major credit ratings agencies to downgrade the US, following Standard & Poor’s in 2011 and Fitch Ratings in 2023.

As trust in the long-term solvency of US debt erodes, so does confidence in the USD’s purchasing power and safe-haven status. Over time, these downgrades could pressure the USD’s value relative to other major currencies, particularly if foreign capital begins to question the reliability of US fiscal governance. The potential for trade wars has exacerbated these concerns.

In this environment, gold has the potential to stand out as a resilient store of value because it has no liability, does not depend on repayment, and does not require yield to justify its role in a portfolio.

Central Banks and Gold Realignment: Momentum, Targets, and Outlook

Central banks have provided a powerful, sustained tailwind for gold over the past 15 years, with annual net purchases surpassing 1,000 tonnes (t) each year since the onset of the Russia-Ukraine war in 2022, or some 25-30% of primary mine supply.¹⁷

We anticipate a slightly softer, but still healthy, pace of accumulation in what should be a 16th consecutive year of official sector net purchases in 2025. The latest data shows central banks reported net purchases of 244t in 1Q, a slight decline from the previous quarter but still significant — 24% above the five-year quarterly average and only 9% below the average seen over the past three years of record demand.¹⁸

Regarding reserve management, among the top 20 central banks by gold reserves as a percentage of total reserves that reported 1Q 2025 data, 90% increased their share of gold as a percentage of total reserves. Emerging market central banks remain the key buyers.

Central Banks’ Gold Allocation Targets

Amid a growing desire to diversify away from USD-denominated reserves, we evaluated how much gold central banks may still need to add to reach strategically grounded allocation targets. These targets are anchored to a ~22% average gold weight as a percentage of total reserves, derived from all central banks that reported in 1Q 2025. Movements towards higher gold reserve targets are a potential “tailwind of demand” that could persist for a decade.¹⁹

To determine where net central bank gold purchases could end 2025, we started with the recently reported 1Q net purchases of 244t and scaled them using historical seasonality, excluding the 2020 pandemic shock.

Based on our analysis and recent investor conversations, we think 900t-1,000t is a reasonable assumption for 2025 net central bank demand, marking the fourth-strongest year since 1971.²⁰

Rising Gold Ownership in APAC Supports Gold Rally

Physical gold ownership in APAC has grown strongly over the past five years, helping underpin a higher gold price regime. Robust gold investment demand, led by China, India, and Japan have been supported by economic uncertainty, geopolitical instability, local currency depreciation, and the underperformance of risk assets relative to gold. Indeed, the APAC share of world gold bar/coin demand rebounded to 65% in 2024, a full recovery from the 2020 consumer recession and 2 percentage points above the 2010-2019 mean (Figure 6).

China’s growing investment demand has been motivated by the poor performance of the domestic equity and property markets, the lack of reliable alternatives due to capital controls, the ongoing uncertainty surrounding China’s policies to revise a slowing economy, and more recently CNY depreciation. India’s rising demand, on the other hand, has been buoyed by a strong local economy, rising income per capita, and weakness in the Indian rupee. Together, these two economies represent ~50% of global gold bar/coin demand,²¹ a trend we expect will remain stable if not grow in the coming years.

In Japan, net inflows into JPY gold investment trusts and gold ETFs jumped from an annual average of US$477 million between 2020 and 2023 to US$1,898 million in 2024.²²

Regulatory changes and new government initiatives have supported the increase of gold ownership in the region and should further support APAC demand in the medium term. Key initiatives we are monitoring include:

• China: Pilot program announced in February 2024 to allow 10 insurance firms to allocate up to 1% of assets to gold.²³
• Hong Kong: Government initiative to establish Hong Kong as an international gold trading center with build-out of physical vaults and gold-related financial regulations.²⁴
• India: In July 2024, India cut the import duty of gold from 15% to 6% and gold ore from 14.35% to 5.35% and reduced the holding period for long-term capital gains on gold from 36 to 24 months.²⁵
• Japan: The Nippon Individual Savings Account (NISA) framework, introduced in January 2024 to enhance initiatives for long term investments in assets to transition idle bank deposits, included gold investment trusts and gold ETFs in its growth investment category.²⁶

Gold Price Outlook: Base, Bull, and Bear Cases

We believe the gold market has transitioned to a higher price regime north of US$3,000/oz for the rest of 2025, but prices could test US$4,000/oz-$5,000/oz over the next 12-24 months.

Base Case (50% probability): US$3,100-$3,500/oz. Harsher tariff rates have been rolled back, including between the US and China. But policy uncertainty and tensions remain on the front foot for the balance of 2025. There is some trough found in the USD and risk sentiment steadies. The Fed is limited in its ability to cut rates due to lingering inflation impulses. China’s retail demand rebounds from the 1Q trough but fails to scale 2023-2024 peaks. Central bank gold demand remains robust but slightly subdued versus 2022-2024. Gold ETF inflows stay positive but moderate from the feverish January-April pace.

Bull Case (30% probability): US$3,500-$3,900/oz. Trade and tariff tensions escalate and there is a clear sign of a shifting geoeconomic order, increasing the risk of US/global stagflation and reduced USD recycling into US sovereign assets. Risk-off regime extends. China’s retail gold demand rebounds more aggressively, central bank gold demand surprises to the upside (e.g. north of 1,100-1,200t), and gold ETF inflows mirror the 2009 and 2020 pace.

Bear Case (20% probability): US$2,700-$3,100/oz. Material de-escalation and semi-permanent resolution to US-Sino geoeconomic relations and a return to USD and US growth exceptionalism. Investors significantly overweight risk assets and US equities. Volatility compresses across asset markets. Fed stays on hold as organic growth rebounds. China, central bank, and gold ETF demand post softer than expected. Though strategic gold buyers could support a dip in a high $2,000s handle, a bear case could see prices compress below $3,000.

¹ University of Michigan Survey, as of April 2025.
² Bloomberg Finance, L.P., State Street Global Advisors, LBMA, as of May 2025.
³ Bloomberg Finance, L.P., State Street Global Advisors, as of May 2025.
⁴ Bloomberg Finance, L.P., State Street Global Advisors, as of March 2025.
⁵ World Gold Council, as of April 2025.
⁶ Bloomberg Financial L.P., State Street Global Advisors, as of May 2025.
⁷ General Administration of China, State Street Global Advisors as of April 2025.
⁸ LBMA,SGE, as of May 2025.
⁹ Institute for International Finance, as of March 31, 2025.
¹⁰ Investment Company Institute, May 20, 2025.
¹¹ Bloomberg Finance, L.P., State Street Global Advisors, as of May 31, 2025.
¹² Bloomberg Finance, L.P., State Street Global Advisors, as of May 31, 2025.
¹³ Bloomberg Finance, L.P., State Street Global Advisors, as of May 31, 2025.
¹⁴ Bloomberg Finance, L.P., State Street Global Advisors, data as of May 31, 2025.
¹⁵ Congressional Budget Office, State Street Global Advisors, data as of May 31, 2025.
¹⁶ Congressional Budget Office, State Street Global Advisors, data as of May 31, 2025.
¹⁷ World Gold Council, as of May 2025.
¹⁸ World Gold Council, as of May 2025.
¹⁹ World Gold Council, State Street Global Advisors, as of May 2025.
²⁰ State Street Global Advisors, data as of May 2025.
²¹ World Gold Council, Global Demand Trends, as of May 2025.
²² Tokyo Stock Exchange, as of December 31, 2024.
²³ World Gold Council, as of February 2025.
²⁴ “Global Demand Trends,” World Gold Council, as of July 2024.
²⁵ “Global Demand Trends,” World Gold Council, as of July 2024.
²⁶ “Global Demand Trends,” World Gold Council, as of July 2024.

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