(Kitco News) – Gold is more than just a safe haven, and its price action is telling investors a great deal about the state of the global economy and financial markets, according to Amy Gower, Metals & Mining Commodity Strategist at Morgan Stanley.
“Gold has always been the go-to asset in times of uncertainty,” Gower said. “But in 2025, its role is evolving. Investors are watching gold not just as a hedge against inflation, but as a barometer for everything from central bank policy to geopolitical risk.”
“When gold prices move, it’s often a sign that something big is happening beneath the surface.”
And with gold up over 38% so far this year, and silver up over 42%, big things are clearly happening. Gower lists several key factors that are driving the rally.
“For one, central banks are on track for another year of strong buying, with gold now representing a bigger share of central bank reserves than treasuries for the first time since 1996,” she noted. “This is a strong vote of confidence in gold’s long-term value. Also, gold-backed Exchange-Traded Funds, or ETFs, saw inflows of $5 billion in August alone, with the year-to-date inflows the highest on record outside of 2020, signaling renewed interest from institutional investors too.”
“With inflation still above target in many major economies, gold’s appeal has been surprisingly resilient despite being a non-yielding asset,” she added. “And investors are betting that central banks may soon have to cut rates, which could further boost gold prices.”
Gower said that Morgan Stanley is forecasting about 5% further upside for gold in 2025, with the yellow metal expected to top out at $3,800 per ounce by year-end.
“But there is one important wrinkle to consider,” she cautioned. “Keep in mind that while precious metals, especially gold, are primarily seen as a hedge and safe haven in times of macro uncertainty, jewelry is a big chunk of the overall precious metals market. It accounts for 40 percent of gold demand and 34 percent of silver demand. And right now, how jewelry demand will evolve remains an unknown.”
Gower said jewelry demand for the precious metals is already showing signs of weakening. “Second-quarter gold jewelry demand was the worst since the third quarter of 2020 as consumers reacted to high prices,” she said. “Nonetheless, gold was able to hold onto its January-April gains, and silver continued to grind higher, supported by strong demand from the solar industry as well.”
And while the two metals lacked catalysts for further gains for several months, both are poised to benefit from projected Fed rate cuts. “Our economists expect the Fed to cut rates at the September meeting, for the first time since December 2024,” Gower said. “And if we look back to the 1990s, on average gold and silver prices have risen 6 and 4 percent respectively in the 60 days following the start of a Fed rate-cutting cycle as lower yields make it easier for non-yielding assets to compete.”
Morgan Stanley’s currency strategists are also predicting further weakness for the U.S. dollar, which will make gold more affordable in other markets around the world. “India’s imports of gold and silver already showed signs of improvement in July,” she noted. “The country is looking also to reform its Goods and Services tax, which could free up purchasing power for gold and silver ahead of festival and wedding season.”
“Gold does tend to outperform after Fed rate cuts, and we would keep the preference for gold over silver, but our outlook for both metals remains positive,” Gower said.
Spot gold shot higher in the immediate wake of this morning’s hotter-than-expected CPI report, but the price has since returned to the middle of its daily range. Spot gold last traded at $3,631.06 per ounce for a loss of 0.26% on the session.
Silver prices are continuing their steady climb higher on Thursday, with spot silver last trading at $41.341 per ounce for a gain of 0.43% on the daily chart.
