Gold has once again taken centre stage in global markets, reaching historic highs and fueling investor interest. On Friday, the precious metal soared past the US$3,000 per ounce mark for the first time, setting a record high at US$3,004.86. As of today, spot gold remains firm at US$2,986.53 per ounce, reflecting a 14 per cent year-to-date gain. Meanwhile, US gold futures have slightly eased to US$2,994.60 per ounce.

This dramatic rally has been driven by a confluence of factors, including geopolitical tensions, trade uncertainties, and shifting monetary policies. But the key question for investors remains: Is gold a good investment right now, or is the market overheated? Let’s analyse some factors shaping gold’s trajectory and assess whether it remains a viable investment in 2025.

Why Is Gold Rallying?

Gold’s meteoric rise in 2025 is underpinned by several macroeconomic and geopolitical factors. Here’s a closer look at the key drivers:

1. Geopolitical Tensions and Safe-Haven Demand

One of the most significant catalysts behind gold’s price surge is rising global uncertainty. Escalating conflicts, particularly in the Middle East, have heightened investor concerns about economic and political stability. Historically, gold has been a go-to asset during periods of geopolitical turmoil, and its recent climb suggests that investors are flocking to safety.

Trade frictions have also contributed to gold’s momentum. Recent jitters over tariffs and increasing US-China trade tensions have raised fears of an economic slowdown, prompting investors to hedge against volatility by turning to gold.

2. Federal Reserve’s Interest Rate Policy

Another key factor supporting gold prices is the expectation of interest rate cuts by the US Federal Reserve. Lower interest rates tend to weaken the US dollar, making gold – which is priced in dollars – more attractive to investors. Additionally, reduced yields on interest-bearing assets, such as bonds, enhance gold’s appeal since it does not generate interest income.

Hopes of rate cuts intensified after recent inflation data suggested that price pressures may be easing, reinforcing the view that the Fed could take a more dovish stance in the coming months.

3. Inflation and Currency Depreciation

Gold has long been considered a hedge against inflation. With persistent inflationary pressures in major economies, investors have increasingly turned to gold to preserve purchasing power. A weaker dollar has further fueled this demand, as it makes gold more affordable for investors holding other currencies.

The ongoing uncertainty surrounding global monetary policies and fiscal spending has kept inflation expectations elevated, reinforcing gold’s status as an inflation hedge.

4. Central Bank Purchases

Global central banks have been increasing their gold reserves, further supporting demand. Emerging markets, particularly China and India, have ramped up purchases as part of their de-dollarisation strategies. This steady institutional demand has contributed to gold’s upward trajectory and provided a strong floor for prices.

5. Market Volatility and Risk Aversion

Recent fluctuations in the stock market, combined with concerns about an economic slowdown, have led investors to seek stable assets. With equity markets experiencing significant corrections, gold has emerged as a preferred option for portfolio diversification and wealth preservation.

Is Gold Overvalued? Key Risks to Consider

While the fundamentals driving gold’s rally are strong, there are potential risks that investors should keep in mind:

1. Potential for Profit-Taking and Market Correction

Gold’s sharp ascent has raised concerns about whether it is due for a correction. When an asset rises rapidly, it often attracts speculative buyers who may exit the market just as quickly. If profit-taking accelerates, gold could experience short-term pullbacks.

2. Changing Federal Reserve Policy

Although markets are currently pricing in interest rate cuts, any deviation from this expectation could weigh on gold prices. If inflation remains sticky or the Fed delays easing monetary policy, gold could face downward pressure.

3. Strengthening US Dollar

If the US economy outperforms expectations, the dollar could strengthen, making gold more expensive for international buyers. A strong dollar environment typically dampens gold demand.

4. Alternative Investment Opportunities

While gold has been a standout performer, other asset classes – such as equities and cryptocurrencies – could attract capital flows if market conditions improve. If investor sentiment shifts toward riskier assets, demand for gold as a safe haven could decline.

Should You Invest in Gold Now?

Gold’s recent rally suggests strong bullish momentum, but investors should carefully assess their risk appetite before making a decision. Here are a few considerations:

• Long-Term Investors: If you are looking to hedge against inflation, geopolitical instability, or currency depreciation, gold can be a valuable addition to a diversified portfolio.
• Short-Term Traders: Given the rapid price appreciation, short-term traders should be mindful of potential corrections and volatility.
• Risk-Averse Investors: If you are seeking stability amid market uncertainty, gold remains a reliable safe-haven asset.

Ultimately, gold’s future trajectory will depend on macroeconomic developments, central bank policies, and global risk sentiment. While current conditions favor higher prices, investors should stay informed and consider their investment goals before entering the market.

Disclaimer:

OERLive does not provide financial advice. All investment decisions carry risks, and investors should conduct their own research or consult a financial professional before making any commitments. The views expressed in this article are for informational purposes only.