Gold has delivered a blistering 26% return in 2025's first half, setting 26 new all-time highs and crushing every major asset class to be one of the top returning commodities across listed producers, sellers and ETFs.
The World Gold Council's Mid Year Outlook 2025 says the question everyone should now ask isn't whether gold had a good run - it's whether this rally has genuine legs or is now running on borrowed time.
Key market tensions:
Record performance already pricing in significant risk premiums
Three distinct scenarios pointing to wildly different outcomes
Institutional positioning suggesting room for further accumulation
The real problem? Consensus expectations rarely match economic reality.
The perfect storm behind gold's surge
Three forces converge to create gold's exceptional performance - and understanding them reveals what comes next.
Dollar weakness dominated the narrative as the greenback posted its worst start to a year since 1973.
Traditional safe-haven flows into U.S. Treasuries faltered in April amid mounting uncertainty, with investors fleeing Treasury inflows just as gold became the primary beneficiary.
Rangebound yields created ideal conditions for non-yielding assets.
Interest rates stayed flat while expectations for future cuts kept opportunity costs minimal - exactly the environment gold thrives in.
Geopolitical premiums added roughly 4% to gold's return through pure risk-aversion flows.
The Geopolitical Risk Index directly contributed half of this premium as trade tensions and confrontational negotiations created sustained uncertainty.
The result? Average daily gold trading volumes hit a record US$329 billion while global gold ETF assets under management surged 41% to $383 billion.
Central banks continued steady accumulation, though below previous record levels.
Using their Gold Valuation Framework, the World Gold Council models three distinct paths forward - each with their own compelling logic.
Consensus case: sideways with modest upside (0-5% gains)
Market expectations point to below-trend global GDP growth, inflation rising above 5% due to tariff impacts, and cautious Federal Reserve rate cuts totaling 50 basis points by year-end.
This scenario suggests gold trading rangebound with modest gains, delivering a 25-30% annual return.
The logic: Current prices already reflect much of the macro uncertainty.
Technical indicators show healthy consolidation after an overbought period, potentially setting up for renewed upside without requiring dramatic deterioration.
Bull case: deteriorating conditions (10-15% gains)
Economic conditions worsen into either severe stagflation or outright recession, triggering aggressive flight-to-quality flows and accelerating central bank diversification away from the dollar.
The catalyst: Gold ETF holdings at 3,616t remain well below the 2020 peak of 3,925t.
Previous bull runs have seen accumulations of 700t-1,100t versus just over 500t in the past twelve months - significant room for institutional buying remains.
COMEX futures net long positions currently sit near 600t compared to over 1,200t during previous crisis periods.
Bear case: risk resolution (12-17% decline)
Widespread geopolitical conflict resolution reduces safe-haven demand while improving economic growth prospects push Treasury yields higher.
Risk-on sentiment returns, triggering gold ETF outflows and reducing central bank demand.
The reality check: This scenario appears least likely given current geopolitical tensions but would see gold retreat to around $3,000/oz - historically a strong support level attracting opportunistic buying.
A complex investment calculus
Several factors complicate the outlook beyond simple macro scenarios.
Elevated prices are curbing consumer demand while encouraging recycling, creating natural headwinds that dampen performance.
Chinese insurance companies and other institutional investors provide potential new demand sources, but the timing remains uncertain.
Central bank appetite shows signs of moderating from record levels while staying well above the pre-2022 average of 500t-600t annually.
Brutal paradox: Everyone knows gold is critical for portfolio diversification - yet the investment landscape remains wildly dependent on scenarios that rarely unfold as predicted.
Efficiency vs opportunity
The consensus scenario essentially argues that gold is efficiently priced - reflecting all currently available information about macro conditions, geopolitical risks, and monetary policy expectations.
This creates a challenge for tactical investors seeking meaningful Alpha generation.
The opportunity: Consensus forecasts rarely match economic reality.
The global economy's tendency to deviate from predictions means the bull and bear cases deserve serious consideration for positioning decisions.
The risk: Gold's first-half performance already captures significant risk premiums.
Further substantial gains require material deterioration in conditions or genuine conflict resolution to trigger meaningful directional moves.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
