Gold price and global economic uncertainty

Over the past two months, the price of gold has been surging continuously, reaching unprecedented levels. The rise has been so sharp that middle-income consumers around the world are hesitant to purchase gold under the current circumstances. This sudden surge in the gold price has prompted economists to delve deeper into the underlying factors.
Though the sudden rise in gold prices is staggering, it is not an unconventional phenomenon. In 1979-1980, gold prices soared amid the oil crisis and inflation shock. Again, during the 2008-2011 global financial crisis, gold prices surged due to worldwide banking instability. More recently, the Covid-19 pandemic in 2020 led to a surge following clashes in global markets. Likewise, economists now attribute the 2025 rally in gold prices to ongoing global economic uncertainty.
There can be multiple key factors behind the recent surge in gold demand, driving its price to record highs. While there are expectations of interest rate cuts from the U.S. Federal Reserve, gold does not produce interest, which makes it more attractive. Moreover, escalating tensions in U.S-China relations over trade policies have weakened global growth, prompting investors to turn towards safe havens like gold. Central banks are also increasing their gold holdings to diversify away from the US dollar and counterbalance currency risk. Another robust inflow has been observed in gold-backed exchange-traded funds (ETFs), which provide investors with easier access to gold exposure. At the same time, several countries are actively reducing their dependence on the US dollar in international trade, boosting gold's relative appeal.
Although gold has been rallying recently due to these economic factors, it also has some caveats. If the Federal Reserve backs off from rate cuts, it could slow gold's momentum. Moreover, following sharp gains, the gold market may consolidate. Therefore, whether the gold price surge continues depends heavily on central bank reserve policies, currency dynamics, and how geopolitical uncertainty evolves.

MD. Ashfaque Islam
Department of Finance and Accounting
North South University