The truth behind gold price fluctuations: Why is it still soaring in 2025?

From the end of 2024 to early 2025, global investors are repeatedly troubled by one question — How much longer will gold prices keep rising? After gold surged past $4,400 in October to hit a new high and then retraced, the market fell into a wait-and-see mode. But if you want to truly understand this round of market movement, you must see through the underlying logic driving gold price fluctuations.

This time, gold’s rally is truly different

Over the past 30 years, few years have seen gold perform like this. According to Reuters data, the gains in gold during 2024-2025 have already approached the highest levels in nearly 30 years, surpassing 31% in 2007 and 29% in 2010. These numbers are impressive, but behind them are concrete market forces at work.

Three forces driving gold price movements

Policy uncertainty brings safe-haven demand

Entering 2025, a series of tariff policies have directly changed market expectations. Historical experience (such as the US-China trade war in 2018) shows that during periods of policy uncertainty, gold typically sees a short-term rise of 5-10%. As market concerns increase, gold’s appeal as a safe-haven asset also rises.

Inverse effects of interest rate policies

The Federal Reserve’s rate cut expectations have a profound impact on gold. There is an important economic principle: gold prices are negatively correlated with real interest rates. Rate cuts → dollar weakens → opportunity cost of holding gold decreases → gold’s attractiveness increases.

According to the latest data from CME interest rate tools, the probability of the Fed cutting interest rates by 25 basis points at the December meeting is as high as 84.7%. This expectation alone is enough to support gold prices. However, it’s worth noting that after the September FOMC meeting, gold prices actually declined, because the 25 basis point rate cut had already been priced in by the market, and Powell characterized it as a “risk management rate cut,” without signaling ongoing rate cuts, which dampened some investors’ optimism.

Continued central bank gold purchases

According to the World Gold Council (WGC), net central bank gold purchases reached 220 tons in Q3 2025, a 28% increase from the previous quarter. More notably, in the central bank gold reserve survey report published by the WGC, 76% of surveyed central banks expect to “moderately or significantly increase” their gold holdings over the next five years, while most expect the dollar reserve ratio to decline. Central bank actions often indicate long-term trends, providing an intangible fundamental support for gold prices.

What other factors are driving gold prices?

Besides the three main forces above, other factors also influence gold price movements:

• Global debt has reached $307 trillion (IMF data), limiting policy space for countries, making monetary policy more likely to remain accommodative, indirectly lowering real interest rates and boosting gold’s appeal.
• Increasing doubts about the US dollar’s reserve currency status. When confidence in the dollar wanes, investors tend to shift funds into traditional safe-haven assets like gold.
• Ongoing conflicts such as the Russia-Ukraine war and tensions in the Middle East continue to create geopolitical uncertainty, reinforcing demand for gold as a safe haven.
• Continuous media coverage and news reports trigger herd behavior, leading to short-term capital inflows into the market and increasing gold price volatility.

How do institutions view gold prices in 2025?

Despite recent retracements, professional institutions generally remain optimistic about the outlook. JPMorgan’s commodities team considers this correction a “healthy pullback,” and has raised its Q4 2026 target price to $5,055. Goldman Sachs reaffirmed its end-2026 target of $4,900. The most aggressive forecast comes from Bank of America strategists, who suggest gold could break through the $6,000 mark next year, offering significant upside from current levels.

Looking at the physical gold market, well-known jewelry brands’ reference prices for pure gold jewelry remain above 1100 yuan/gram, with no obvious decline, indirectly confirming market confidence in the future trend.

How should retail investors approach entering now?

After understanding the logic behind gold price movements, the key question for retail investors is not “Can I still buy?” but “How should I buy?”

If you are a short-term trader, the current volatility provides trading opportunities. Liquidity is ample, and during large price swings, the direction is relatively easier to judge, especially around US economic data releases. However, this requires good technical skills and risk management. It’s recommended to use economic calendars to track key data to assist decision-making.

If you want to buy physical gold for long-term holding, be prepared to endure fluctuations. Gold’s annual volatility averages 19.4%, which is not more stable than stocks (S&P 500’s average annual volatility is 14.7%). Additionally, transaction costs for physical gold typically range from 5-20%, which should also be considered.

If you prefer to allocate gold as part of your investment portfolio, it’s fine, but avoid over-committing. Gold should be a risk diversification tool, not the main source of returns.

To maximize gains, you can hold long-term while using price fluctuations for short-term trading, especially during periods of increased volatility around US data releases. But this requires experience and strict risk controls.

A few important reminders

Gold price cycles are long-term. If you view gold investment over a 10+ year horizon, the overall trend should be upward. But within this period, prices may double or halve, so psychological resilience is crucial.

Different assets have different volatility characteristics. Although gold is seen as a safe-haven asset, its volatility is not low, and it’s not suitable as emergency reserve funds.

For Taiwanese investors purchasing foreign currency-denominated gold, consider USD/TWD exchange rate fluctuations, which directly impact actual returns.

In summary, the gold market in 2025 is not over, but opportunities and risks coexist. The key is to choose the most suitable participation method based on your risk tolerance and trading experience.