Gold prices may hit $3,500 on safe haven demand, analysts say

Bullion has gained nearly 21% so far this year driven by a weaker dollar, recession concerns, central bank demand and increased flows into gold-backed ETFs

Shoppers look to buy gold at the Gold Souq in Dubai. Spot gold has hit record highs and gained nearly 21 per cent so far this year. Chris Whiteoak / The National

After hitting an all-time high of $3,237 on Friday, gold prices could touch between $3,400 and $3,500 in the months ahead as investors flock to bullion as a safe-haven asset from market volatility, analysts say.

Spot gold has continued its blazing rally from the last year, hitting record highs and gaining nearly 21 per cent so far this year driven by a weaker dollar, recession concerns over the intensifying trade war between US and China, central bank demand and increased flows into gold-backed exchange-traded funds.

Beijing increased its tariffs on US imports to 125 per cent on Friday, hitting back against US President Donald Trump's decision to increase duties on Chinese goods to 145 per cent.

“It is expected that the gold rally will continue to run, with prices anticipated to reach $3,400 to $3,500 per ounce over the next few months,” said Vijay Valecha, chief investment officer at Century Financial.

“Further, as recession risks mount, the US dollar continues to weaken against an uncertain economic backdrop while the euro strengthens – reinforcing gold’s role as a crisis hedge.”

Gold ETF buying also continued its pace in March, with all regions contributing. US funds led the charge with $6 billion (67 tonnes) of net inflows, followed by Europe and then Asia with approximately $1 billion each, he added.

The combination of tariff-induced inflation risks and geopolitical uncertainty provides a robust foundation for gold prices.

The drivers that propelled gold higher – including persistent uncertainty focused on US-China trade tariffs, the potential inflationary pressures from tariffs, and questions around future central bank policy – remain firmly in place, supporting a constructive outlook for the precious metal.

“With China and the US getting further away from making a trade deal, this is the number one source of uncertainty right now for all sorts of risk assets,” said Fawad Razaqzada, market analyst at City Index and Forex.com.

“While Trump’s reversal of reciprocal tariffs on other nations is a step in the right direction, investors want to see a sign of progress with China. Until that happens, gold investors will be keen to keep doing the same: buying the dips.

“But at these prices, gold is looking quite expensive and could take a sharp drop once sentiment towards risk improves.”

As recession risks mount, the US dollar continues to weaken against an uncertain economic backdrop while the euro strengthens – reinforcing gold’s role as a crisis hedge

Vijay Valecha,
chief investment officer, Century Financial

Saxo Bank forecasts that gold will reach a minimum of $3,300 this year.

A combination of heightened global economic tensions, the risk of stagflation (a combination of lower employment, growth and rising inflation) and a weaker dollar will continue to support bullion, according to Ole Hansen, head of commodity strategy at Saxo Bank.

“Adding to this is a market that is now aggressively positioning for the US Federal Reserve to deliver more cuts this year – at current count more than 75-basis points of easing by year-end – and not least continued demand from central banks and high-net-worth individuals looking to reduce or hedge their exposure to US government bonds and the dollar,” he said.

Mr Valecha said it is also worth noting that real yields are higher and above their long-run average, suggesting more downside risk for yields, benefiting gold prices.

Forward equity price-to-earnings ratio also remains high, and that provides capacity for further downside to equities should an economic slowdown and earnings downgrades worsen, acting as a boon for gold's safe-haven appeal, he reckoned.

Moreover, the willingness to hold gold, given the current extreme policy uncertainty, could generate real momentum, he said.

“By historical standards, the current rally isn't particularly large or long. This is because from 1971 to 2020, whenever gold rallied in a way similar to the current rally, it gave an average return of 242 per cent,” Mr Valecha explained.

“Looking at the current rally that started in 2022, gold is up around 100 per cent, signalling that it still has a long way to go, especially since fundamentals look strong.”