Gold price increase to a 2.5% at the GPR index

 

The big question now is whether gold can hold above $3,000  

Uncertainty appears to be the undertone across markets. Concerns over tariffs, and the wide-ranging impact they could have on global growth, continue to cast a cloud and question US exceptionalism. This has added to already rising geopolitical risk. Recent events have highlighted the need for greater military spending, which will likely result in even higher deficits. 

There are several factors that could reinstate the thorny problem of higher inflation, especially at a time when deteriorating economic conditions may necessitate interest rates staying low. The US economy is likely in ‘stagflation’ and consumers appear to see it that way. 

Historically, each of these drivers has individually been positive for gold. A move up in the GPR (Geopolitical Risk Index) index of 100 points is typically linked to a 2.5% increase in the price of gold, all else equal. Similarly, a rise in 10-year break-even inflation expectations of 50bps is typically associated with an approx. 4% rise in gold prices. And a 50bps fall in 10-year Treasury rates over the long-run has been associated with a 2.5% rise in gold.

Although these drivers seldom occur simultaneously, their combined effect can create an environment in which gold can continue to perform positively.  

It is worth noting, nonetheless, that a solid fundamental case for gold still must scale the hurdle of a temporary technical stretched price. 

A retracement may create short-term headwinds but could also provide a welcome respite for uninitiated investors, as well as for consumer gold demand. In all, we expect gold to remain in the limelight given the current market conditions. These said World Gold Council (WGC), in their Gold Market Commentary - February 2025.  

Now in the March, recently, John Reade, Senior Market Strategist, Europe and Asia, WGC said, Gold hitting US$3,000 per ounce is a significant milestone and reinforces the asset's safe haven role in times of uncertainty. From $1,000 during the financial crisis to $2,000 amid the pandemic, gold has proven to perform well in risk-off environments as well as delivering returns in line with most other asset classes since 1971.   

Since 2022 gold has broken its tight relationship with US Interest rates and the USD as central banks have doubled their gold purchases and investment demand from emerging markets has grown.   

Central banks have been net buyers for the past fifteen years, but purchases have surged in the past three years, with over 1,000 tons bought each year since 2022, reaching 1,045 tons in 2024. We believe geopolitical factors have driven this increase – including de-dollarisation, sanctions, and inflation concerns. As global fragmentation continues, central bank buying will remain a strong pillar of demand and shape the market’s long-term dynamics.   

At the same time, emerging market investors are playing a bigger role. Chinese investors are faced with a stagnant property sector and have increasingly turned to gold. In Turkey, demand soared as households look to hedge against currency weakness, while India’s import duty cuts fuelled buying in the region.  

Adding to this longer-term trend, the recent rally has been the result of uncertainty around US tariffs and the developing trade war, which has been amplifying economic risks and market volatility, further driving investor interest in gold as a key diversifier.   

The big question now is whether gold can hold above $3,000. Heightened risk and uncertainty will certainly help sentiment, but this will need to be translated into stronger buying from investors, especially western buyers, or another step-up in central bank buying.