Record gold rally still has legs, global body predicts

Khaleej Times

09-04-2025

Gold has hit multiple records this year, and the rally is likely to still have legs, a report said.
'The extent and speed of gold's rally has drawn out comparisons to previous peaks. While there are headwinds that the gold market will naturally face in this environment, our analysis also suggest that current macroeconomic conditions are quite different to prior periods when the gold market reached previous highs,' the World Gold Council said in its Gold Market Commentary for March.
Gold finished March at $3,115/oz, a gain of 9.9 per cent month on month. Even a materially weaker US dollar, primarily via euro strength, couldn't prevent a stellar performance and new highs across all other major currencies. 'Euro strength and thus US dollar weakness was once again a key driver of gold's performance, alongside an increase in geopolitical risk capturing tariff fears,' the WGC report said.
While much of the conversation over the past week has centred around tariffs, liquidity risk remains an important undercurrent. 'And we believe we may now be approaching a similar impasse to what markets experienced in 2022. Quantitative tightening is slowing but there has been no mention of a resumption of quantitative easing. Indeed, the appetite might not be there given the high levels of debt and sticky inflation,' the WGC said.
In addition, constraints on US government spending via the Department of Government Efficiency (DOGE) are stifling fiscal support, the global body stressed. In addition, the US labour market is flirting with contraction as hours worked are in steep decline. 'Layoffs are also now on the rise and are likely to feed into payroll numbers in due course. To add to this, uncertainty surrounding tariffs has supercharged concerns about the resiliency of labour markets in the short and medium term,' the WGC said.
The current run-up in price has taken many by surprise. Paraphrasing an old adage, shouldn't high prices for a commodity cure high prices? But that logic isn't working for gold. 'Gold is not a commodity in the traditional sense and primary production's response may have only limited impact on price. The willingness to hold and reluctance to sell – given current extreme policy uncertainty – could generate real momentum,' the WGC said.
By historical standards, the current rally isn't particularly large or long. And comparing the current rally to the recent 2011 and 2020 peaks highlights that, relatively speaking, fundamentals look more solid, the WGC said.
US gold ETFs are a considerably smaller share of all US ETF assets than during 2011 as ETF buyers have been on the sidelines for the best part of four years they are not overbought
Real yields are higher and above their long-run average, suggesting more downside than upside risk for yields – and vice versa for gold prices.
Forward equity price-to-earnings remains high, and that provides capacity for further downside to equities should an economic slowdown and earnings downgrades worsen, especially in the current geoeconomic conditions, a boon for gold's safe-haven appeal.
Credit spreads are considerably tighter than during the two previous peaks. Again, widening risks trump contraction risk, and are also gold supportive.
The dollar remains elevated relative to prior periods even if it has weakened since the start of the year. 'With the Trump administration favouring a weaker dollar and the uncertain effect of tariffs, this could serve as an additional tailwind for gold,' the WGC said.