Who Is Driving This Gold Rally?

After a week of consolidation, gold $ETFS Physical Gold(GOLD.AU)$ brushed off the “risk” of the FOMC rate decision and surged to a fresh record high on Monday night, reaching as high as $3,688/oz. The key question now: when will this rally peak? The answer depends largely on what is driving this move — and who is buying. Understanding these factors helps us determine where we are in the gold cycle.

Short-Term Drivers

The recent rally is not hard to explain. The main short-term catalysts are:

• Pricing in a September Fed rate cut

• Uncertainty around Trump’s policies and tariffs

• Falling U.S. Treasury yields

• Geopolitical risk premium

• Inflation hedging

Among these, the September rate cut expectation and policy/tariff uncertainty under Trump are the most powerful medium-term drivers.

Gold’s rally restarted right after Powell’s dovish speech at Jackson Hole in late August. The weaker-than-expected Nonfarm Payrolls data and CPI readings in September continued to support gold prices. Markets have now fully priced in a 25bp cut in September, with a small chance of 50bp, but more importantly, expectations have shifted toward a “rate-cutting cycle.” This means the market now expects three cuts in 2025 and possibly more in 2026, depending on data.

This pivot — from “two cuts in 2025” to “multiple cuts across 2025 and 2026” — is the biggest driver of the rally in non-USD currencies, U.S. equities, and precious metals.

Policy unpredictability under Trump is another factor supporting gold in the medium to long term. The market is increasingly seeking gold’s safe-haven properties to hedge against political risk. His attacks on the Fed’s independence also undermine trust in the U.S. dollar, reflected in the DXY index’s 10.47% drop YTD, wiping out all of 2024’s gains.

Finally, the early-September U.K. gilt market “meltdown” spread to global bond markets, shaking investor confidence in governments’ ability to service long-term debt given surging debt-to-GDP ratios. This made gold look more attractive relative to Treasuries. Since late 2022, when inflation peaked, gold’s real yield has outperformed 10-year Treasuries, further tilting investor preference toward gold.

Source: longtermtrends

Geopolitical risk and inflation are still supportive but now have diminished impact. Unless there is a major escalation (“new powder keg”), the market has become somewhat desensitized to these headlines. Historically, war risk premiums are eventually given back, meaning they are mostly short-term price drivers.

Long-Term Structural Drivers: Gold’s New “Financial” Role

The bullish case for gold $ETFS Physical Gold(GOLD.AU)$ today is fundamentally different from ten years ago. Back then, demand was dominated by jewelry and industrial use — gold was mainly a physical asset and a “safe haven.”

Today, gold’s financial attributes have overtaken its physical ones. ETF and investment demand have far outstripped jewelry demand. The rally from $2,070 to $3,680 is largely ETF-driven.

Source: World Gold Council

This reflects gold’s evolving role as a portfolio stabilizer — essentially the “anchor” for risk assets like equities. Its lower volatility compared to equities (see left chart: volatility comparison across asset classes) and relatively stable annualized returns (right chart) make it increasingly attractive as a core portfolio allocation.

Source: World Gold Council

Central banks have been boosting gold reserves, and HNWI investors are increasing gold allocations as part of a structural portfolio shift. HSBC’s $HSBC Holdings PLC(HSBC)$ Affluent Investor Snapshot 2025 highlights three reasons for this trend:

1. Gold as the ultimate safe-haven asset in an increasingly fragile dollar-based system.

2. Real assets (gold, real estate) and absolute-return strategies (hedge funds) offer strong inflation protection.

3. Strategic diversification into alternatives is now seen as a return-enhancing core allocation, not just a defensive hedge.

This shift reflects the evolution of modern portfolio theory — in an era where uncertainty is the new normal, alternatives are no longer “optional,” they are key engines of long-term return.

Source: Affluent Investor Snapshot 2025: A Quality of Life special report

$Gold - main 2512(GCmain)$ $Goldman Sachs Physical Gold ETF(AAAU)$ $GoldMining Inc.(GLDG)$ $E-Micro Gold - main 2512(MGCmain)$ $Barrick Mining Corporation(B)$

Invesight Viewpoint

Fueled by both short-term and long-term factors, this Trump-era “gold rush” shows no signs of ending yet. However, all eyes should be on Thursday’s FOMC statement and Powell’s press conference. If Powell signals a slower pace of cuts after September (a more hawkish tilt), both equities and gold could face a short-term pullback. Still, as long as the market finds strong support levels, dips may offer buying opportunities. Overall, the long-term trajectory remains upward — gold prices are likely heading higher over time.