Metals Focus: Strong demand from investors and central banks supports gold prices, maintaining a bullish outlook for gold in the future

According to the Zhitong Finance APP, the world precious metals consulting company Metals Focus stated that gold has become one of the most important asset classes in 2025, soaring 26% since the beginning of the year, showing impressive performance. The uncertainty surrounding the U.S. economy, trade, and foreign policy has been a key factor driving investors to continue buying gold. Given that uncertainty may remain high for some time to come, the outlook for gold remains bullish.

Metals Focus pointed out that the significant inflow of new funds from institutional investors into the gold market is the main force driving gold prices up. After four consecutive years of outflows from 2021 to 2024, the sharp rebound in investor interest in gold ETPs in 2025 is a clear example. According to data provided by the World Gold Council, global gold ETPs achieved a net inflow of 226 tons in the first quarter of 2025, setting a new quarterly increase record since the third quarter of 2020. There are signs that funds accelerated their inflow in early April. It should also be emphasized that gold ETPs in all regions of the world have seen inflows this year. Although Western investors continue to dominate global gold ETPs, demand from investors in China and India is also rising rapidly.

Sticky inflation and President Trump's tough trade policies have triggered panic over the U.S. economy potentially falling into stagflation, leading to a sharp decline in the U.S. stock market. Unlike previous market downturns when the dollar and U.S. Treasuries benefited from their appeal as safe-haven assets, both the dollar and U.S. Treasuries faced massive sell-offs in early April. It is important to note that prior to the recent bond market retreat, the high levels of U.S. debt and interest rates had led to high debt servicing costs, making the outlook appear grim, and market attention on U.S. Treasuries has been increasing. Trump's unpredictable policies have undoubtedly heightened concerns about whether the dollar and U.S. Treasuries should be viewed as risk-free assets.

In addition, expectations of interest rate cuts are also supporting the strength of gold. Despite rising inflation expectations, the market still anticipates that the Federal Reserve will lower policy interest rates, with expectations of three rate cuts of 25 basis points each by the end of 2025. Geopolitical uncertainties also remain high. Conflicts in the Middle East and the Russia-Ukraine conflict seem unlikely to settle quickly.

Besides the continuous inflow of funds from institutional investors into gold, strong demand for gold from global official sectors this year has also provided solid support for gold prices. During the period from 2022 to 2024, the annual net purchases of gold by global official sectors exceeded 1,000 tons, accounting for 23% of total global gold demand, significantly higher than the historical average level (which was typically just above 10% during 2010-2019).

Although gold prices have reached record highs, countries like China, Poland, and Turkey, which regularly purchase gold, continue to increase their gold reserves in 2025. The reasons for this include the ongoing factors that have prompted central banks around the world to diversify their international reserves in recent years. The uncertainty surrounding U.S. foreign and trade policies, coupled with the recent volatility in the U.S. Treasury market, has provided central banks with ample reasons to accelerate their de-dollarization efforts, which typically benefits gold

Looking ahead, although the Trump administration has announced a 90-day suspension of reciprocal tariffs and provided some exemptions, the current U.S. tariff rates remain at their highest level since World War II. Considering that increased tariffs will push up inflation and lead to a decline in consumer purchasing power, the U.S. economy seems inevitably set to slow down in the short term. As the impact of the Trump administration's tariffs on the U.S. economy has yet to materialize, investors may continue to adopt a cautious stance towards the stock market. Concerns about the high level of U.S. government debt are also unlikely to dissipate.

More importantly, the economic policies of the Trump administration may provoke stronger skepticism in the market regarding U.S. assets (including U.S. stocks, U.S. bonds, and the U.S. dollar). In this context, diversifying investments and allocating some funds to gold is often seen as a prudent strategy. In fact, although investor funds continue to flow into gold, their current allocation level in gold remains below the recent peak during the COVID-19 pandemic and far below the levels seen during the 2008-2009 financial crisis. This indicates that there is still significant room for further inflows into gold, especially from medium to long-term institutional investors. Similarly, the demand for gold from central banks around the world is expected to remain strong. Finally, as the physical gold market becomes accustomed to high gold prices, it is believed that the upward trend in gold prices has been established, and the fundamentals for gold should also improve