Five Charts on Why We Still Favor Gold in 2H 2025

By Aakash Doshi | Head of Gold Strategy, State Street Investment Management
By Diego Andrade | Senior Gold Strategist, State Street Investment Management
By Mohamad Abukhalaf | Gold Strategist, State Street Investment Management
July 7, 2025

In our Gold 2025 Midyear Outlook, we emphasized that bullion prices had likely reset structurally higher, forming a new $3,000/oz baseline.
While upside price volatility may temper over the next few quarters after a feverish 18 month gold market rally, supportive factors including ETF inflows, central bank purchases, a weak US dollar trend, and alt-fiat demand still favor a bullish skew for the yellow metal into 2026.
We continue to assign an 80% probability that bullion prices will be flat-to-higher over the next 6-9m, potentially approaching $4,000/oz in our 30%-weighted bull case scenario. That should favor casting gold in both a strategic and tactical lens.

Gold ETF holdings are still light compared to the 2020 peak

The physically backed gold ETF sector posted monthly inflows in 5 of the first 6 months of 2025 and in 9 out of the last 12 months ending June 2025.¹ It now seems clear the global gold ETF outflow cycle has reversed.
Financial demand for physically backed bullion ETFs should support higher gold prices to ration other pockets of demand and/or incentivize gold recycling activity.
Total worldwide gold ETF tonnage enters 2H 2025 down ~18-19% from the 4Q 2020 peaks,² despite the recent inflow trend. That suggests plenty of scope for investors to expand holdings.

Historically elevated US stock/bond correlations support the use of gold as a portfolio hedge, as was the case during the March/April market volatility shock

The case for gold as a macro portfolio overlay or economic tail risk hedge has been enhanced since 2022, as US stock/bond correlations spiked to their highest levels in three decades.
Gold is not a replacement for government bonds or investment grade credit. But in a higher interest rate volatility environment, amid lingering inflation risks that could be further exacerbated by trade policies, gold can incrementally be used as a ‘duration’ and ‘diversification’ hedge.
Indeed, in March/April this year, during the rout in equities and back-up in long bond yields, gold proved to be a robust market hedge – outperforming all major US dollar denominated global asset classes.³

Central Bank survey results underscore confidence in gold as a reserve asset

Gold has overtaken the Euro as the second-largest reserve asset for central banks. The yellow metal accounted for 18% of global official reserves in 2024, a substantial increase from its 11% annual average between 2014 and 2023.⁴ This compares to the Euro’s 16% share, which remains just slightly above its long-term average of 15%.⁵
According to the WGC’s 2025 Central Bank Gold Reserves survey, a record 95% of respondents expect global gold reserves to increase over the next 12 months, while 43% expect to raise their own holdings- the highest on record.⁶ Importantly, none of the 73 central bank respondents anticipate reducing their gold allocations.⁷
The US dollar remains dominant, representing 46% of global reserves.⁸ But strategic shifts away from the US dollar appear to be accelerating with 73% of survey respondents projecting a lower share of USD in global reserves over the next five years. In parallel, 76% believe gold will represent a higher share of global reserves by 2030.⁹

Gold should benefit as opportunity cost for zero coupon assets weakens on potential Fed cuts

As the Federal Reserve guides further rate cuts in 2025 and 2026, money market yields are expected to decline further. This should diminish the appeal of cash-like instruments, reducing the opportunity cost of holding non-yielding assets like gold.
A sharply declining US dollar trend and a potentially dovish Fed pivot in 2H 2025 could help gold take some incremental allocation share from the record ~US$7 Trillion parked in money market mutual funds.¹⁰ As the dollar weakens, the relative purchasing power of cash erodes strengthening the case for hard assets like gold as both a store of value and portfolio diversifier.
Recent Fed easing cycles (e.g., 2001, 2008, 2019-2020) were followed by robust upward momentum in gold, demonstrating its effectiveness as a portfolio hedge during monetary transitions.

Investor demand for ‘alt-fiat’ favors gold demand over the longer term

Investor demand for alt-fiat assets has gained traction following the Covid pandemic. Notably, this is both a US and global phenomenon.
Worldwide sectoral debt neared a record $325 Trillion in 1Q 2025 or roughly 3x global GDP in current dollars. Importantly, a record 30% of that debt lies on government balance sheets.¹¹
Gold is original hard money and should structurally benefit as sovereign balance sheets fail to address fiscal imbalances.

Check out more gold insights from State Street Investment Management here.

Footnotes
1 Bloomberg Financial L.P. and State Street Investment Management, as of 6/30/2025.
2 Bloomberg Financial L.P. and State Street Investment Management, as of 6/30/2025.
3 Bloomberg Financial L.P. and State Street Investment Management, as of 4/30/2025.
4 Source: YouGov, World Gold Council, as of 6/17/2025.
5 Source: YouGov, World Gold Council, as of 6/17/2025.
6 Source: YouGov, World Gold Council, as of 6/17/2025.
7 Source: YouGov, World Gold Council, as of 6/17/2025.
8 Source: YouGov, World Gold Council, as of 6/17/2025.
9 Source: YouGov, World Gold Council, as of 6/17/2025.
10 Source: ICI as of June 11 2025.
11 Source: IIF, State Street Investment Management, data as of March 31, 2025.

Definitions

Central Bank a financial institution given privileged control over the production and distribution of money and credit for a nation or a group of nations.

COMEX the main futures market for trading metals, including gold, silver, copper, and aluminum.

Gold Spot Price the price in spot markets for gold. In US dollar terms, spot gold is referred to with the symbol “XAU,” which refers to the price of one troy ounce of gold in USD terms.

LBMA Gold Price PM (US$/oz) IBA independently administers the price and provides the auction platform on which the LBMA Gold Price is calculated, while LBMA own the intellectual property rights. The platform is electronic, tradeable, auditable and in line with the IOSCO Principles for Financial Benchmarks.

Real Rates the Interest rate after adjusting for inflation. It reflects the true cost of borrowing and the actual yield on investments by stripping out the effects of rising prices.

FOMC a committee within the U.S. Federal Reserve System responsible for setting monetary policy.

Liberation Day term used to describe the imposition of broad tariffs as a symbolic turning point in U.S. trade policy. It reflects the idea of “liberating” American industry from reliance on foreign manufacturing and addressing perceived trade imbalances.

De-Dollarization process by which countries reduce their reliance on the U.S. dollar in international trade, financial transactions, and foreign exchange reserves- often driven by geopolitical motivations, sanction risk, or efforts to assert monetary sovereignty.

Tariffs taxes imposed by a government on imported goods and services, typically used to raise revenue or protect domestic industries from foreign competition.

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