Gold surged past $4,000 per ounce on 8th October, driven by US Fed concerns and weaker economic data. Dr. Claudio Wewel, FX Strategist at J. Safra Sarasin Sustainable Asset Management, says debt fears, geopolitical fragmentation, and growing institutional interest are supporting the rally. He remains bullish, expecting the upswing to continue in the near- to medium-term.
Gold crossed the $4’000 mark for the first time yesterday morning (8th October). It has added more than $600 since early September, following President Trump’s attempt to dismiss Fed Governor Lisa Cook, sparking renewed concerns over the Fed’s independence. The gold rally gained more traction as August data on the US jobs market came in substantially weaker than previously expected. This steepened the path of market-implied rate cuts in the US, lowering the opportunity cost of holding gold. Even though interest rates have recently mattered less for the price dynamics of gold than in the past, they continue to exert some directional influence on the precious metal, along with a weaker dollar.
Yet the bundle of factors driving the sharp rise in gold demand extends far beyond the integrity of US institutions. More broadly, gold has pushed higher on concerns over government debt sustainability in the US and in other developed markets, while it also stands to benefit from geopolitical fragmentation. There is little doubt about the outlook, and we remain bullish on the precious metal as these factors are likely to remain in place over the near- and medium-term. Even the crypto industry is showing increasing interest in gold, which may provide additional upside, given the market’s considerable size. Lastly, the review of historical bull cycles suggests that the current rally still has room to run.
Gold ETFs back in the driving seat
While demand was strongly driven by central banks in the years following Russia’s invasion of Ukraine, total central bank purchases will probably drop for the full year 2025. Yet we would expect central banks to buy dips opportunistically, providing a ‘central bank put’ to the gold market. In contrast, net ETF inflows have been considerably higher in 2025 than in the previous three years, taking the total amount of gold held by ETFs to above 3’800 tonnes. This is close to the peaks seen during the 2020 Covid sell-off in risk assets and in the months following Russia’s invasion of Ukraine in 2022. Since the beginning of this year, ETF purchases have been largely event-driven, as weekly net inflows show.
Going forward, we expect gold demand to shift increasingly from individuals to pension funds and other asset managers. Recent fund manager surveys reveal that strategic long-term allocations to gold still remain quite low, at around 1 to 2% in portfolios, implying that gold remains ‘under-owned’. With gold delivering a stellar performance in 2024 and in 2025, this is poised to change, as the ‘opportunity cost of not holding gold’ has grown considerably. Rather than the traditional 60-40 asset allocation between equities and bonds, asset managers are considering increasing gold allocations significantly, due to its greater resilience as an inflation hedge amid rising longer-term bond risk premia. Some banks recently even suggested a 60/20/20 portfolio strategy, resulting in equal weightings of gold and fixed income. While this may represent the upper end of the scale, increasing allocations to 5% would still double or triple gold holdings in asset managers’ portfolios.
Economic backdrop remains supportive
Given gold hit the psychologically important $4,000 mark – where should we expect the precious metal to head going forward? In our view, a variety of factors will continue to support the rise of gold. Beyond concerns over the integrity of US institutions, gold should continue to rise on the back of concerns over fiscal and debt sustainability in the US and in other developed markets. In this ‘perfect storm’, gold also stands to benefit from continued geopolitical frag mentation, which is driving longer-term de-dollarisation. In this regard, gold is increasingly seen an expedient way to ‘short the dollar’.
While it is difficult to make a reliable prediction to which levels gold could rise in 2026, a look at historical gold rallies is instructive. Unlike equities, gold experiences episodes during which the precious metal rises strongly, outperforming most risk assets, while it has also experienced prolonged episodes during which the metal barely trended higher or even posted a negative performance. After WW2, gold experienced its strongest performance in the 1970s, when it delivered a cumulative return of 1,355%. The 1970s were followed by two decades during which gold saw negative performance. Yet gold picked up again in the 2000s, almost quadrupling its price. Since January 2020, gold has added 163%. Hence, we believe there is room for gold to climb higher from here, acknowledging that this implies upside risk to our 2026 year-end target at $4,500 per troy ounce. Inflows from the crypto space may provide additional upside, given the crypto market’s considerable size, with a market capitalisation of around $4trn.
What are the downside risks?
Certainly, gold’s bull cycle is going to halt at some point, but in our view, it is hard to see gold-negative factors in the near- to medium-term. Many of the key fears fuelling the gold rally are likely to stay, for example, concerns over the integrity of US institutions, particularly Fed independence, fiscal and debt sustainability concerns and the geopolitical fragmentation trend. For gold to change its course, a major reversal of US policies would be required, yet we believe this is quite unlikely. Historically, sharp selloffs in risk assets have forced larger-scale gold liquidations, which led to near-term retracements of around 10% (e.g., 2020 Covid and 2025 Liberation Day selloffs). Yet gold was typically quick to rebound from such temporary troughs within a matter of days, which in our view represent attractive entry opportunities.
