Gold rush not slowing down

Gold prices hit a record high in April of $US3,500 an ounce, in real terms, as a combination of heightened uncertainty around tariffs, economic growth, inflation, and interest rates created a perfect storm for the precious metal.

And while language out of the Unted States around tariff policy has softened somewhat, deep uncertainties still linger. As a result, ANZ Research has upgraded its gold-price forecast to $US3,600/oz by the end of 2025.

Increasing downside risks for equity markets could even see institutional investors increase their allocations.

Supply dislocation, triggered by the prospect of US tariffs, has been one of the drivers of the rally. Gold is exempt from the tariffs, but ANZ Research expects commodity exchange inventories to stay elevated, as investors wait for clarity on direct tariffs and favourable arbitrage to reverse flows of gold that have been flooding into the US.

The current rally is reminiscent of the 1970s and 1980s, when high inflation, slowing growth and geopolitical tensions pushed prices to a high of $US850/oz, equal to around $US3,483/oz in today’s terms. The current backdrop suggests prices are still far away from their peak.

Gold hasn’t yet fully benefited from the equity market selloff. The gold-to-S&P 500 index (SPX) ratio is still low, especially compared to levels seen during the global financial crisis (GFC) and the 1980s. This suggests gold could attract additional haven demand if the risk mood sours. Exchange traded fund (ETF) holdings are still 20 per cent lower than their peak in 2020 and speculators have not participated in the latest price rally since February.

Central bank purchases will continue as the trade turmoil further erodes trust in US assets. ANZ Research expects official buying to continue, setting a good base for demand.

There are downside risks to the updated forecast. A de-escalation in the US-China trade war, a quicker resolution of trade concerns with other trading partners, and improvement in the US’ economic outlook could all hurt.

Correction

Broad risk-off sentiment in the wake of the US’ reciprocal tariff announcement in early April caused a temporary market correction. Although a selloff was to be expected, concerns about a tariff-induced economic shock led to a swift recovery in gold prices.

In similar past instances, gold prices fell alongside risky assets as investors liquidated positions to cover equity losses. During the GFC, gold prices dropped by over 25 per cent amid an equity market selloff from March to November 2008.

Similarly, prices declined by 12 per cent compared to a 30 per cent fall in the SPX during the COVID-19 market liquidation in March 2020. The crisis in Ukraine saw gold prices fall in tandem with the equity indexes, although the price decline was less than half of decline in the SPX in the second quarter of 2022.

The positivity for gold has been continuing since late 2022 and every price retracement has been shallow. This means the underlying factors behind gold’s bull run are strong, and the latest US tariffs and tit-for-tat responses between the US and China will further strengthen its safe-haven appeal.

Fears of a blanket tariff on gold led to a shift in trade flows from London and other trading hubs to the US. Investors started importing gold for physical delivery at Chicago Mercantile Exchange approved vaults, which led to a sharp withdrawal from London vaults.

Over 200 tonnes of gold was withdrawn in two months, while at the same time stocks at Comex grew by more than 700 tonnes. This caused temporary tightness in liquidity in the London spot market, lifting lease rates to 5 per cent in January. It also encouraged exchange-for-physical trades, which pushed the spread between futures and spot to as high as $US90/oz to $US100/oz in January.

Comex inventories have since surged to record highs, with the stocks-to-open interest ratio reaching unprecedented levels – suggesting gold inflows would slow down. That appears guaranteed after Trump confirmed that gold would be exempt from reciprocal tariffs.

While this significant relocation has been one of the drivers behind the latest rally, ANZ Research does not see this exemption as a headwind for gold prices. Inventories will likely remain elevated with normalisation to be gradual.

A similar Comex inventory build-up occurred in 2020 due to supply disruptions, and they remained elevated until mid-2022. Currently, investors are still waiting for clarity on direct tariffs and will not be in a rush to ship gold out of the US. Conditions need to be favourable enough to incentivise the reversal of flows, but that is not yet the case.

Gains

On an inflation adjusted basis, this really exceeds those that occurred during the GFC and COVID-19 and briefly reached record high of $US3483/oz in 1980.

The current bull run started at $US1,168/oz in 2016, gaining momentum in 2018 due to trade tensions during Trump's first term. The pandemic in 2020 further supported the gold price, with deployment of stimulus to sustain economic growth during shutdowns.

However, the pivotal point in this rally was in 2022, when Russia invaded Ukraine while the world was recovering from the pandemic and dealing with high inflation from monetary and fiscal easing.

While geopolitical tensions persist, the threat of outsized US tariffs on trading partners has added considerable uncertainty to the global economic outlook. Now, inflation expectations in the US are rising due to higher tariffs. It is challenging to quantify the impact of tariffs on inflation and growth just yet, but it is highly likely to be detrimental.

Both the SPX and gold rose more than 50 per cent in the last two years, with gold outperforming the SPX in 2024. This may sound counterintuitive against the backdrop of the 2020s, if viewed strictly from the lens of typical ‘risk aversion’. But ANZ Research believes the gold price rally prior to Trump’s tariff announcements had deeper and more enduring roots.

Strong central bank purchases and investment demand likely reflected a hedge against a fragmenting geopolitical backdrop. The US Trade Uncertainty Index and the Economic Policy Uncertainty Index surged following Trump’s announcements.

US equities are facing downside risks following a protracted period of stretched valuations. In such an environment, gold can benefit further from typical risk-aversion behaviour. The gold-to-SPX ratio is still low, especially compared to the GFC and 1980s. This suggests gold could still be undervalued relative to the SPX and can attract haven demand if the risk mood sours.

ANZ Research believes an incremental rise in haven demand will come from strategic investors that have been missing in the price rally since 2022. Normally, bull runs in gold have been driven by exchange-traded-fund flows, along with speculative and over-the-counter demand. Instead, there has been a liquidation of 740t of ETF holdings since 2021.

Higher interest rates and strong equity market performance have subdued strategic allocations in the last three years. Nevertheless, the outflows in ETFs started reversing with the US’ monetary cycle. ETF flows increased by 225t in the first quarter of 2025, according to World Gold Council data.

As a region, the US added 139t of net-flows and 33t in Asia. This shows that institutional investors are returning as they look to hedge risks.

China is driving investment in ETFs for Asia and increasing yuan volatility should help support further ETF investments. The move by Chinese authorities to allow insurance companies to allocate 1 per cent of their funds to gold will add 260t to 280t of gold demand. Holdings of gold in ETFs are still 20 per cent lower than the peak in 2020, suggesting there is scope for addition. ANZ Research expects inflows to be above 500t in 2025.

Stockpiling

Central bank purchases of gold have come in above 1,000t for three consecutive years, nearly double the average since 2010. ANZ Research reiterates its view from February 2024 that this is a structural change that will continue for some years.

Ongoing trade tensions will deplete trust in US assets, motivating emerging markets central banks to boost their gold reserves. And the US’ focus on China should see Beijing continue to favour non-$US assets.

Emerging market central banks are increasing the share of gold in their reserves, and this is likely to continue. In the first two months of 2025, official buying added 42t of gold. China bought 26t over the last five months.

ANZ Research estimates central bank demand will be in the range of 900–1,000t in 2025. This sets a strong base for gold demand, though it will not add to the incremental rise seen in 2025.

On the macroeconomic front, another headwind for gold could emerge should the US Federal Reserve keeps rates unchanged against current market expectations of three to four cuts.

Increasing risks of a deeper recession, another turn in the geopolitical landscape, disruptions in global supply chains, fears of rising inflation along with a changing rate outlook suggest gold will remain on strong footing in the foreseeable future.

Soni Kumari is a Commodity Strategist & Daniel Hynes is a Senior Commodity Strategist at ANZ

This is an edited version of the ANZ Research report, “The Vault: gold’s déjà vu”, published April 16, 2025