Central bank demand, geopolitical tension, trade friction and US dollar weakness to support gold this year

Anticipated Fed rate cuts also enhance bullion’s attractiveness as an inflation hedge, experts say

Gold chains at a jewellery store in Chennai, India. Bullion prices have recorded year-to-date gains of roughly 26 per cent. AFP

Persistent central bank demand, geopolitical tension, sanctions, trade friction and further US dollar weakness are expected to continue supporting gold prices in the second half of the year, analysts say.

Bullion prices have recorded year-to-date gains of roughly 26 per cent.

​Gold prices are trending upwards, reaching $3,355.95 per ounce as of July 12, driven by geopolitical tension, including the Russia-Ukraine conflict, and US tariff policies under President Donald Trump, which bolster its safe-haven appeal.

“The prospect of lower US interest rates could reignite demand, especially for metal-backed exchange-traded funds by reducing the opportunity cost of holding non-yielding assets like precious metals, compared to short-dated government bonds,” said Ole Hansen, head of commodity strategy at Saxo Bank.

“Precious metals are politically neutral, unlike sovereign bonds or fiat currencies. They are universally recognised as a store of value, not tied to the creditworthiness of any nation, which is why central banks are increasingly allocating to gold as a core reserve asset.”

Mr Trump unveiled new tariffs against more than a dozen countries on Monday as he increases pressure on America's trade partners to negotiate on deals.

Tunisia, Japan, South Korea, Malaysia and Kazakhstan were all hit with tariffs of 25 per cent. Mr Trump announced tariffs of 30 per cent on Bosnia and Herzegovina and South Africa, 32 per cent on Indonesia, 35 per cent on Bangladesh and Serbia, 36 per cent on Cambodia and Thailand, and 40 per cent on Myanmar.

He said the US would impose a 35 per cent tariff on imports from Canada next month and also threatened to impose another 10 per cent tariff on any country that aligns itself with the Brics group of emerging economies.

Gold is currently trading in a relatively tight horizontal range just below the April record high near $3,500, Saxo Bank’s Mr Hansen said.

A lack of “fresh bullish catalysts” has raised the risk of a deeper correction, especially after recent signs of “buyer fatigue”, he added.

“Gold notably failed to rally alongside silver and platinum or attract a safe-haven bid during the brief Israel-Iran conflict. At the same time, surprisingly strong US economic data has postponed rate cut expectations without triggering a significant gold sell-off – another sign of underlying resilience,” Mr Hansen said.

“Technically, gold remains in consolidation mode, with immediate support at $3,245 and secondary support at $3,120. A break below the 200-day moving average – currently at $2,945 – would challenge our bullish outlook.

“However, gold has remained above that level since October 2023, when it traded below $2,000. Until then, we view this consolidation as a pause – not the end – of the investment metals rally.”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said trade and geopolitical tension have been the major driving force of gold prices so far this year, yet there is strong resistance at $3,400 per ounce lately.

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Gold remains a “valid play” in the context of rising inflationary pressures with, however, limited upside potential from the actual levels, she said.

“We recommend holding 10 per cent of gold in traditional portfolios,” she added.

Strong central bank buying of 900 tonnes in 2025 and robust ETF inflows of 552 tonnes in the first quarter of 2025 reflect sustained demand for gold, while a softer US dollar and anticipated Federal Reserve rate cuts (100 basis points by year-end) enhance the precious metal’s attractiveness as an inflation hedge, according to Aaron Hill, chief analyst at forex trading broker FP Market.

Mr Hansen of Saxo Bank has a “constructive” outlook on gold in the second half of the year.

Key sources of support include persistent central bank demand aimed at diversifying and de-dollarising reserves, stagflation risks in the US, particularly if the full impact of Mr Trump's tariff policies spur deeper rate cuts, as well as continuing geopolitical tension, sanctions, and trade friction, he said.

Other driving factors are mounting US fiscal concerns, with the “Big Beautiful Bill” set to further inflate an already unsustainable deficit, Mr Hansen added.

Also in view is portfolio rebalancing by sovereign wealth funds and institutional investors away from US equities and treasuries, towards tangible assets such as metals, and further dollar weakness particularly if stagflation fears intensify.