Deep analysis of the reasons for gold price fluctuations in 2025: Why are global central banks and investors all rushing for gold?

In October this year, gold prices broke through $4,400 per ounce to hit a record high. Although there was a subsequent pullback, this surge has become one of the strongest markets in the past thirty years—2024-2025 gains are approaching the highest in nearly 30 years, surpassing the 31% in 2007 and 29% in 2010. For many investors still on the sidelines, the most urgent question is: Will this rally continue? What are the reasons for gold’s rise and fall? Is it too late to enter now?

Why Are Gold Prices So Strong? Revealing the Three Deep Drivers

Gold’s rise is not without reason. The reasons for gold’s rise and fall involve multiple interacting factors. To understand the current market, we need to analyze from three dimensions: macroeconomics, monetary policy, and geopolitical risks.

First Layer: Market Uncertainty Caused by US Policy Changes

Since the beginning of 2025, expectations and implementation of a new round of tariff policies have been heating up, directly increasing market risk aversion demand. Historically, during similar periods like the US-China trade war in 2018, gold prices typically experienced a short-term rapid surge of 5–10% amid policy uncertainty. When markets are filled with uncertainty, investors naturally flock to the widely recognized “safe assets”—gold being the best choice.

Second Layer: Fed Rate Cut Expectations and Actual Inverted Real Interest Rates

This is the most critical logic behind understanding gold’s rise and fall. Gold prices have a clear negative correlation with real interest rates—the lower the interest rate, the more attractive gold becomes. Why? Because holding gold yields no interest income. If market interest rates are high, the opportunity cost of holding gold is significant; conversely, when rates are low, gold becomes relatively more cost-effective.

The Fed’s 25 bps rate cut in September aligned with expectations, but Powell characterized it as a “risk management” cut rather than a dovish shift, leading to divided market expectations about future rate cuts. However, according to the latest CME interest rate tools data, the probability of a 25 bps rate cut in December is as high as 84.7%, which is a key support for gold prices. If economic data weaken, the rate cut pace may accelerate, further boosting gold’s attractiveness.

Third Layer: Continued Central Bank Gold Purchases Globally

Data from the World Gold Council (WGC) shows that in Q3 2025, global central banks net purchased 220 tons of gold, a 28% increase from the previous quarter. In the first nine months, central banks accumulated about 634 tons of gold. More importantly, in WGC surveys, 76% of respondent central banks indicated they plan to “moderately or significantly increase” their gold reserves over the next five years, while expecting the dollar reserve ratio to decline.

This signals an important message: central banks worldwide are reassessing their reserve structures. Gold, as the most neutral and stable reserve asset, is regaining favor. When the world’s largest capital allocators are buying gold, the price support cannot be underestimated.

The Overlooked Drivers: Debt, Geopolitics, and Sentiment

Besides the three main drivers above, several other factors are pushing gold prices:

Global high debt levels limit policy space. IMF data shows that by 2025, global debt totals $307 trillion. High debt environments mean policymakers tend to favor easing rather than tightening, which naturally benefits gold.

Confidence in the US dollar wavers. When market confidence in the dollar declines, gold priced in USD benefits, attracting more international capital inflows.

Geopolitical risks continue to escalate. Ongoing Russia-Ukraine conflict, Middle East tensions, and other events increase safe-haven demand for precious metals. Each escalation triggers a short-term surge in gold buying.

Community sentiment amplification. Continuous media coverage and social media sentiment can lead to a flood of short-term capital inflows, creating a self-reinforcing upward cycle.

It is important to note that the reasons for gold’s rise and fall involve both short-term factors (such as sentiment and geopolitical events) and long-term factors (like central bank reserve adjustments and real interest rate trends). Their interaction results in the current intense volatility. For investors in Taiwan, currency fluctuations between USD and TWD also need to be considered.

Institutional Outlook: Gold Price Targets for 2026

Despite recent corrections, major global institutions remain optimistic about gold’s outlook:

J.P. Morgan’s commodities team considers this correction a “healthy adjustment” and has raised its Q4 2026 target price to $5,055 per ounce.

Goldman Sachs maintains a target of $4,900 per ounce by the end of 2026.

Bank of America is more aggressive, previously raising its 2026 target to $5,000, and recent strategists suggest gold could even challenge $6,000 next year.

Major jewelry brands (Chow Tai Fook, Luk Fook Jewelry, etc.) still quote gold jewelry prices in mainland China above 1100 RMB/gram, with no significant decline.

These forecasts reflect that professional institutions believe the medium- to long-term upward trend of gold remains intact, and the deep factors supporting gold’s rise and fall continue to exert influence.

What Should Retail Investors Do? Four Decision Frameworks

After understanding the logic behind gold prices, investors with different backgrounds should adopt different strategies:

Experienced short-term traders: The increased volatility makes this an ideal time for short-term profits. Market liquidity is ample, with clear momentum during sharp surges and dips, making it easier to judge short-term directions. Focus on volatile periods around US economic data releases, which are the best trading opportunities.

New investors: Start with small amounts to test the waters and gradually familiarize yourself with gold trading rhythms. Never blindly increase positions just because others are making money—gold has an average annual volatility of 19.4%, higher than the S&P 500’s 14.7%. Volatility can lead to chasing highs during surges and cutting losses during dips, risking significant losses after repeated cycles.

Long-term physical gold holders: Be prepared to endure significant short-term fluctuations. Gold as a store of value requires a horizon of 10+ years to fully realize its benefits. During this period, prices could double or be cut in half. Additionally, physical gold has higher transaction costs (5%-20%), so heavy positions are not recommended.

Allocation investors: Adding gold to a portfolio can enhance stability, but do not allocate all your assets into it. Gold’s volatility is not lower than stocks; diversification remains the safer approach. To maximize returns, consider holding long-term while trading short-term fluctuations.

Final Risk Reminder

While the reasons for gold’s rise and fall are logical, caution is still necessary:

• Gold cycles are very long; realizing wealth preservation may take over 10 years.
• Short-term volatility can be intense, especially around US economic data releases and Fed meetings.
• Do not concentrate all funds in a single asset.
• For beginners, learn to use economic calendars to track US economic data, which can effectively assist trading decisions.

As a globally trusted asset, the long-term upward trend of gold remains unchanged. However, to profit from this market, one must have a good understanding of macroeconomics, a clear awareness of personal risk tolerance, and disciplined execution.