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Thought of the day

Gold hit a new high on Wednesday, extending its recent rally as investors seek haven amid a flurry of political and geopolitical headlines. The latest inflation data showing contained price pressures also keeps further Federal Reserve easing in store. Trading at above USD 4,630/oz at the time of writing, gold has risen over 7% this year, following a near 65% gain in 2025.

But despite the strong rally, we expect gold prices to move higher. We see bullion reaching USD 5,000/oz in the coming months amid hedging demand stemming from ongoing macroeconomic, policy, and geopolitical concerns.

Geopolitical tensions have resurfaced in the Middle East. Iran has been in focus this year amid domestic protests and warnings by the US that it may intervene. US President Donald Trump this week urged Iranians to keep protesting, adding that “help is on its way.” From a market perspective, the continued operation of energy assets and exports of hydrocarbons from the wider region is the key focus, as crude oil leaving through the Strait of Hormuz overall amounts to roughly 20% of global demand. Any development that could once again lead to investor unease over impeded flows of hydrocarbons out of the region or damage to infrastructure could lift oil prices and weigh on markets. However, the oil market has been hesitant to price a risk premium in the recent past, and we expect it to be somewhat oversupplied in the first half of this year. We therefore see gold as the preferred hedge asset at this stage for its diversification potential.

Institutional and policy uncertainty highlight hedging demand. While the Department of Justice’s investigation into Fed Chair Jerome Powell shouldn't alter the likely path for Fed easing this year or halt the equity rally, investor concerns remain. The fate of Trump’s “reciprocal” tariffs is also up in the air, with a US Supreme Court decision possible today. The court never says in advance which decisions are ready for release, only that rulings in argued cases are possible when the justices take the bench at 10am Washington DC time. Additionally, with the US midterm elections in November, uncertainty surrounding US domestic policy amid an evolving political environment should add to investor appetite for gold.

Fundamental backdrop is favorable for gold. While the latest data has alleviated some concerns over price pressures, inflation remains relatively elevated and a key economic worry. This should drive real yields lower amid further Fed easing, boosting the appeal of gold given its non-interest-bearing characteristics. Fears over rising global debt levels and US public finances should also sustain continued investor appetite for real assets like gold, given its freedom from counterparty risk.

So, as central bank and investor demand for gold is expected to grow further this year, we stay long gold and see value in a mid-single-digit allocation to the precious metal in a well-diversified portfolio. While we note the downside risks given the current elevated premium, the gold price could also climb higher than we forecast to USD 5,400/oz if political or financial risks increase.