Gold hits a new high. What's next?

Favorable and Unfavorable Macroeconomic Factors

At the core of gold's recent strength lies a significant shift in the global macroeconomic landscape. For the first time in years, the dominant narrative is shifting from monetary policy tightening to a more accommodative stance. This transition is profoundly impacting the value of gold by altering the opportunity cost of holding this non-yielding asset.

Monetary Policy Shift and the Real Interest Rate Catalyst

The Fed is at the forefront of a global monetary policy pivot. After a long period of raising interest rates to fight against inflation, the central bank's focus has changed, a move that provides a strong tailwind for gold prices. The market is now pricing in a high probability that the Fed will cut interest rates at its upcoming FOMC meeting on September 16-17, with estimates reaching over 90% according to the CME FedWatch tool. This is a significant reversal from previous expectations and is largely a reaction to the weakening US labor market.

The US labor market recently showed significant signs of weakening as the number of new jobs created in July was only 73,000, while the figures for the previous two months were revised down sharply with a total decrease of 258,000 jobs, indicating a very large change from previous favorable numbers. In addition, the unemployment rate also rose to 4.2% despite being at a low level. This puts high pressure on the Fed, causing the market to strongly expect the Fed to cut interest rates this month.

The causal link between this weakening labor data and the prospect of an interest rate cut is a significant bullish signal for gold. When interest rates fall, the opportunity cost of holding non-yielding gold decreases, making it more attractive compared to interest-bearing assets like government bonds. Furthermore, this dynamic is amplified by the relationship between gold and real interest rates.

J.P. Morgan Global Research forecasts global Core Inflation to rise to 3.4% YoY in the second 2H2025, with US Core PCE Inflation expected to rise to 4.6%YoY in 3Q. This prolonged high inflation, in the context of slowing growth, creates a stagflation-like environment, one of the most optimal conditions for gold as a hedge against the unique combination of stagflation, recession, and devaluation risks.

Currency Dynamics and the Weakening Dollar

Gold, primarily priced in US dollars, has a strong inverse relationship with the currency. The recent depreciation of the dollar has been a significant tailwind that has amplified gold's rally and is a key factor to watch in the coming months. For Vietnam, the price of gold is further boosted by the depreciation of the VND against the USD, making the price of gold denominated in VND even higher.

The US Dollar Index (DXY), which tracks the dollar against a basket of major currencies, has fallen by as much as 10% as of September 4, 2025. This weakness is driven by a shift in global growth expectations, a narrowing of interest rate differentials as the Fed prepares to cut rates, and a broader loss of confidence in the US currency. A weaker dollar makes gold cheaper for international buyers holding other currencies, thereby boosting demand and pushing prices up.

A major long-term driver of this dollar weakness is the trend of central banks strategically reducing their holdings of US dollars in favor of gold. The 2025 World Gold Council survey showed that 73% of central bank policymakers expect a decline in the proportion of US dollar holdings over the next five years. This shift is not just a short-term trading signal but a structural reflection of de-dollarization efforts linked to geopolitical and economic uncertainty.

Supply and Demand: A Structural Shift

Demand for gold in 2025 is characterized by strong, multi-faceted growth from institutional, official, and individual sectors. This has created a solid demand floor that has sustained gold prices even at record highs.

Central Banks: Central bank gold buying has become a stable, structural demand factor supporting the market. These banks have been net buyers for 16 consecutive years. Recently, the pace of purchases has increased significantly, with over 1,000 tons per year in the last three years, compared to 400-500 tons in the previous decade. J.P. Morgan forecasts that central banks will buy an additional 900 tons of gold in 2025, mainly due to geopolitical and policy uncertainty.

A survey by the World Gold Council reinforces this sentiment, with 95% of central banks expecting to increase their gold reserves in the next 12 months. This move aims to diversify away from traditional currencies like the US dollar, reduce geopolitical risk, and hedge against economic instability. The purchase of gold at record high prices shows the strategic importance of the metal in an unstable world.

According to data from Bloomberg and Tavi Costa, the share of gold in the total value of foreign exchange reserves of global central banks has now surpassed the share of US Treasury bonds, which also reflects the changing perspective of central banks towards gold.

Investor Flows: A Revival of Institutional and Individual Interest In addition to central banks, institutional and individual investors are also driving gold prices sharply higher.

ETFs and Futures Markets Gold ETFs attracted more than 420 tons of gold from the beginning of 2025 to the end of July. Despite this, the amount of gold held by these funds is still 7% lower than the 2020 peak, indicating significant growth potential. At the same time, in the futures market, investors are also increasing their bets on the price of gold. Data shows that their net long positions are still below the one-year average, indicating that the potential for buying to push prices up is still very large.

Changing Consumer Demand in India and China. In India and China, although high gold prices have reduced the demand for traditional jewelry by volume (down 14% YoY in Q2.2025), people have increased their purchases of gold coins and bars by 11%. Currently, this demand accounts for nearly half of the total household gold demand. This change shows that gold is gradually being seen as a strategic financial asset rather than just a piece of jewelry. This helps the price of gold to be less affected by short-term cultural trends and more resilient to market fluctuations.

Geopolitical Risk Premium: A World Full of Uncertainty Gold as the Ultimate Safe-Haven Asset Current conflicts, such as in Russia-Ukraine and the Middle East, are creating economic and political instability, undermining confidence in traditional currencies. Fear and psychological uncertainty have driven demand for gold, an asset considered safe and stable.

In addition to conflicts, US trade policy, with the proposal to impose reciprocal tariffs, also adds to geopolitical risk. These tariffs not only threaten global economic growth but could also cause inflation and trade wars, reducing confidence in the US as a reliable economic partner.

In short, these geopolitical risks force central banks and investors to diversify their assets into gold, a non-sovereign asset, creating a loop: increased geopolitical risk will drive gold demand, increasing its value.

Synthesis and Forward-Looking Forecast The convergence of the aforementioned catalysts suggests that gold's rally is not speculative but fundamentally sound. The overwhelming evidence indicates that the continuation of a dovish pivot by the Federal Reserve, combined with geopolitical uncertainty and persistent trade tensions, will continue to support gold prices. This is reinforced by a new structural demand floor from central banks and a strong revival in institutional and individual investment.

Analysts have significantly adjusted their forecasts to reflect this new reality. J.P. Morgan now expects gold prices to average $3,675/ounce in the final quarter of 2025, with the potential to rise to $4,000/ounce by the second quarter of 2026. Other forecasts are even more optimistic, with some analysts citing targets as high as $3,700 to $4,300 in the near future. Strong inflows into gold ETFs and continued demand from central banks reinforce the possibility of achieving these higher price targets.

Risks A balanced analysis must address potential headwinds that could dampen gold's bullish momentum:

• A Pause in the Policy Pivot: Stronger-than-expected economic data or a persistent rise in inflation could delay or reduce the Fed's expected rate cuts, which would increase the opportunity cost of holding gold and could lead to a price correction.
• De-escalation of Geopolitical Tensions: A sudden de-escalation of conflicts or a resolution to trade tensions could reduce safe-haven demand, temporarily removing a key catalyst for gold prices.
• Profit-Taking: After a significant price increase, investors may take profits, creating temporary selling pressure that could lead to short-term volatility.
• Dollar Recovery: A rally in the US dollar due to better-than-expected data on economic growth or the labor market could be driven by a return of risk-averse sentiment towards risky assets, putting pressure on gold prices.