On Monday, January 12, gold prices in the Asian session hit another record, gapping higher at the open to refresh the record high to the $4,600 mark. Although the US December non-farm payroll data released last Friday was mixed, and the Federal Reserve is almost certain not to cut interest rates in January, the market retains expectations for at least two rate cuts within the year. Furthermore, persistent geopolitical tensions, with current escalating protests in Iran keeping markets on alert, have further heightened risk-aversion sentiment.
Last week's US employment data sustained market expectations for further Federal Reserve rate cuts, supporting the prices of non-yielding precious metals. The employment report showed that job growth last month was lower than expected, further cementing market expectations that the Fed will continue to lower borrowing costs to stimulate the economy, with silver prices also approaching historical highs.
Following a 65% surge in gold prices in 2025, the largest gain in nearly half a century, a Bloomberg survey indicates that fund managers are still betting on further price increases. They believe the forces driving gold to new record highs remain intact, including lower interest rates, heightened geopolitical tensions, and declining confidence in the US dollar.
Institutions believe that declining confidence in major developed market currencies—attributed to questioned central bank independence and rising sovereign debt—is a key factor supporting gold prices. The swelling public debt of developed economies exacerbated last year's political turmoil, as evidenced by the deadlock in the US Congress, political paralysis in France, and the scrutiny of the record budget from Japan's new leadership.
UBS Asset Management points out that pension funds and insurance funds' interest in gold continues to grow. It is estimated that by 2025, some funds that had never held gold before have allocated approximately 5% of their strategic asset allocation to gold. It added that the factors attracting these funds are gold's strong returns and its potential to hedge against downside risks in other assets within a portfolio.
Even so, the proportion of gold held by US investors remains very low. Despite gold hitting record highs, according to a Goldman Sachs Group analysis in December, gold exchange-traded funds (ETFs) account for only 0.17% of US private financial investment portfolios, 6 basis points lower than the 2012 peak. The bank estimates that for every 0.01% increase in gold purchases, the gold price rises by approximately 1.4%.
Sustained gold purchases by central banks are expected to remain the most significant driver for further gold price appreciation, with Goldman Sachs forecasting central bank monthly buying of around 80 tonnes in 2026. In 2022, the pace of buying accelerated significantly after the freezing of Russia's foreign exchange reserves highlighted gold's appeal (as gold cannot be frozen).
Central banks rarely sell down their gold holdings, meaning demand from this sector is seen as a stable support for the gold price. While monetary authorities may have lit the fuse for gold's rise, rapid inflows from institutional and retail investors further pushed prices higher in the second half of last year, a trend that has continued this year.
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