In its latest update, the firm said it believes bullion has established a new baseline “floor price” between US$3,000-3,100/oz, amid heightened volatility and shifting macroeconomic dynamics.
“There is a strong tactical and strategic case to be made that the gold market has transitioned to a higher price regime north of US$3,000/oz,” State Street said in a note this week.
Gold’s rally has been nothing short of remarkable this year, surging nearly 27 per cent year-to-date and outperforming major asset classes.
April alone saw gold break the US$3,500/oz mark in intra-day trading, before closing the month above US$3,300/oz, up 6 per cent month-on-month.
The latest data from the World Gold Council (WGC) attributes the surge to a combination of factors, including a sharply weaker US dollar, heightened geopolitical risks, and a spike in market volatility.
Interestingly, the WGC observed a degree of mean reversion acting as a brake on performance.
“Some investors likely took profits following four consecutive months of strong returns,” the report noted.
ETF flows have been a standout driver of demand, with Q1 seeing US$21 billion in inflows – the strongest quarter in three years – followed by another US$11 billion in April. Chinese funds alone have increased holdings by a striking 77 per cent year-to-date.
Yet, despite this remarkable run, the WGC argues the gold investment market is far from saturated.
“Previous gold bull runs have coincided with significant inflows in gold ETFs. But there seems to be room to grow,” the council said. It pointed out, gold holdings by funds listed in Western markets are 575t (or 15 per cent) below their record high.
Moreover, the WGC flagged central banks as an important source of demand for the past three years, significantly contributing to gold’s performance.
“We still expect central bank demand to remain robust this year, but rapidly rising prices have, in the past, temporarily decelerated purchases,” it said.
Similarly, in conversation with InvestorDaily, Betashares senior investment strategist Cameron Gleeson said central bank gold buying rose about fourfold after the US froze Russian dollar assets in 2022, as countries outside its security umbrella moved to diversify reserves, a trend he believes will persist.
“Central banks, whether it be in emerging market countries, even in some Eastern European countries, increased dramatically from that point,” Gleeson said.
“And we think that, you know, given that US traders have been really the default store of value for central banks around the world, there’s a need for a liquid, you know, deep store value replacement, that that is gold, right? Like, you’re not going to see central banks buying bitcoin, they’re going to look for something like gold, and that story will continue in terms of central bank buying of gold as a store of value.”
Consolidation could be ‘healthy’
State Street’s revised price scenarios for 2025 reflect a sustained bullish tilt.
Its base case (45 per cent) sees gold trading at US$3,100–3,500/oz through the year. A bull case (35 per cent) envisions prices climbing to US$3,500–3,900/oz in the second half, particularly if global trade tensions, notably between the US and China, escalate. The bear case (20 per cent) assumes a resolution of tariff wars and inflation risks, potentially dragging prices down to US$2,700–3,100/oz as financial markets pressure policymakers for a course correction.
“On balance, post-Liberation Day trade policies have enhanced the case for gold investment in 2025 by concurrently filtering through the market uncertainty, FX/rates, US/global economic growth order, equity volatility, and liquidity channels,” the firm noted.
That said, some moderation may be on the cards. State Street flagged that the “feverish pace” of Western gold investment demand seen in the first 14 weeks of the year could stabilise in Q2.
“In our view, some consolidation could be healthier for the gold market over the medium term,” it said.
For its part, the WGC said for the bull run to endure, consumer markets will need time to adjust to historically elevated price levels.
