This week, the world spot gold price continuously set new records, surpassing the 2,900 USD/ounce mark and getting closer to the important threshold of 3,000 USD.
The rally was fueled by record demand from central banks, geopolitical uncertainty, tariff concerns and dramatic shifts in global capital flows.
Veteran fund manager Adrian Day, CEO of Adrian Day Asset Management, believes this is just the beginning.
“I wouldn’t be surprised to see gold prices hit $3,500 to over $4,000 in the next 12 months (up about 40% from where they are now),” he told Kitco News. “Gold is rising even with a strong dollar. Once the dollar weakens, gold prices could explode even further.”
Global gold demand is set to hit a record 4,974 tonnes in 2024, marking the third consecutive year of central bank purchases of more than 1,000 tonnes, according to the World Gold Council (WGC). China, Poland and Turkey are the biggest buyers, as they seek to reduce their dependence on the US dollar amid rising economic and geopolitical risks.
Adrian Day points out that this trend is the main driver behind gold prices.
“The biggest driver of gold over the past two years has been central banks,” he said. “They are reducing their dollar holdings because they are worried about the weaponization of the greenback. This trend is not slowing down, it is accelerating.”
But it’s not just central banks that are looking at gold as a hedge. Global investors are also looking at gold as a hedge. US-China trade tensions escalated after President Donald Trump imposed new tariffs on Beijing, and China retaliated with tariffs on US goods.
The threat of a prolonged trade war, coupled with Mr Trump’s global steel and aluminium tariffs, is roiling the gold market, pushing London’s gold lease rate to 12% – a sign of a severe short-term shortage.
"Gold is a hedge against monetary turmoil - whether it's inflation, deflation or recession. And right now, we're facing all three at once," Adrian Day explained.
Some experts say gold prices could fall after the recent surge, but Adrian Day believes structural factors are still supporting further price increases, including the risk of stagflation - a situation where high inflation is combined with stagnant growth.
“Look at the data over the last five months – CPI, PCE, all rising. Weak stock markets, stubborn inflation, unsustainable debt. This is the perfect backdrop for gold to continue to rise,” he warned.
With global capital flowing into gold and central banks hoarding at record levels, Adrian Day predicts gold prices still have plenty of room to rise.
