A record-breaking first half

Gold’s 26 percent gain in H1 made it one of 2025’s top-performing major assets. The yellow metal benefited from a rare combination of global factors: a declining US dollar — which had its worst start to a year since 1973 — muted Treasury yields, and a sharp uptick in geopolitical tensions, many linked to US trade policies and regional flashpoints.

These factors created fertile ground for strong inflows into exchange-traded funds (ETFs), over-the-counter (OTC) markets, and futures.

Gold ETF holdings surged by 397 metric tons in the first half — the highest since August 2022 — bringing total holdings to 3,616 tonnes and pushing total assets under management to $383 billion, a 41 percent increase from the start of the year.

Central banks, too, continued to buy gold, albeit at a moderated pace compared to the record-setting quarters of 2022 and 2023. Although net purchases have slowed, they remain significantly above the pre-2022 average of 500–600 metric tons annually.

Why investors piled in

According to the WGC’s Gold Return Attribution Model (GRAM), three key drivers contributed to gold’s H1 surge: risk and uncertainty, opportunity cost, and momentum.

Investor demand stemming from heightened geopolitical and financial risks contributed approximately 4 percent of gold’s return, with half of that explained by a measurable increase in the Geopolitical Risk Index.

A further 7 percent of the return was attributed to changes in opportunity cost, primarily due to the weakening dollar and low bond yields, which made non-interest-bearing gold relatively more attractive.

Lastly, momentum effects, including continued ETF inflows and trend-following investment behavior, added another 5 percent, supporting the metal’s climb through positive feedback loops.

Altogether, these macro and market-based dynamics explained around 16 percentage points of gold’s 26 percent performance in the first six months of the year.

The outlook: Three scenarios for H2

While gold’s fundamentals remain supportive, analysts are cautious about expecting a repeat performance in H2. The WGC outlines three macroeconomic paths that could shape gold’s direction in the second half.

In the base case, moderate global growth and inflation settling near 5 percent could keep real yields subdued, especially if the US Federal Reserve cuts rates by 50 basis points in the fourth quarter.

This environment would likely support gold prices modestly, with forecasts pointing to gains of up to 5 percent. Continued interest from ETF and OTC investors could offset softer consumer demand and increased recycling, both of which may act as speed bumps for further upside.

The bull case envisions a sharp rise in gold if economic conditions worsen — either through stagflation or a full-blown recession.

A flight to safety could trigger renewed ETF inflows, central bank diversification away from the dollar, and heavier positioning in COMEX futures. Under this stress-driven rally, gold could surge another 10 to 15 percent in H2, echoing the strong performance seen during previous crises like 2008 and the early pandemic years.

On the flip side, a more stable geopolitical and macroeconomic environment, such as a resolution to major global conflicts or normalization in trade, would dampen demand for gold. In this bear case, stronger yields and renewed investor appetite for risk assets could pull gold down by as much as 12 to 17 percent.

No matter the outcome, gold continues to serve as a resilient portfolio hedge. Its strong showing in the first half of 2025 reaffirmed its utility in volatile markets, particularly as traditional safe havens like US Treasuries struggle to deliver.

Even if jewelry and retail demand sees pressure, structural support could come from institutional players — including reports that Chinese insurers are quietly upping their gold allocations.

For now, gold may consolidate. But should conditions turn, the metal still has plenty of room to move, in either direction.