GOLD started the year on a bullish note, breaking above the previous high of US$2,790 per ounce on Jan 30 and notching new highs in the trading sessions thereafter. At the time of writing on Thursday (Feb 6), gold has gained 9 per cent year-to-date. The recent surge in gold price can be attributed to several key factors that have converged to create a perfect storm for the precious metal.
Firstly, one of the primary drivers behind gold’s recent rally is the escalating trade tensions between the US and other countries such as Canada, Mexico, and China. US President Donald Trump’s renewed tariff threats have reignited fears of a trade war reminiscent of his first term in 2018 which increases economic uncertainty and drives investors towards gold, a traditional safe-haven asset.
Secondly, the recent weakening of the US dollar since mid-January has also contributed to gold’s ascent. The greenback’s weakness makes gold more attractive to international investors, as it becomes relatively cheaper to purchase the precious metal for those holding other currencies.
Thirdly, robust demand from central banks has provided further support for gold prices. According to the World Gold Council’s annual report, total gold transactions came in at 4,974 tonnes last year, up from 4,899 tonnes in 2023, including over-the-counter investments. Central banks are expected to continue increasing their gold reserves in 2025 as part of efforts to diversify their reserves away from US dollar-denominated assets, sustaining demand in the market.
From a technical perspective, gold has been trading within a long-term uptrend channel since April 2024. The recent breakout above the US$2,715 per ounce resistance level has accelerated bullish price action, setting the stage for further gains. The near-term target could potentially be at the US$2,900 level, based on the height of the ascending triangle consolidation formation observed from November 2024 to January this year, which is US$180, projected onto the US$2,715 breakout level. A successful retest of the uptrend channel’s resistance could see gold advance towards the psychological milestone of US$3,000 by March. In addition, the Moving Average Convergence Divergence technical indicator reinforces the current bullish price action. The indicator has soared to levels last seen during the October 2024 rally.
In conclusion, gold’s strong start to 2025 and its new all-time highs are the result of a confluence of factors, including trade tensions, US dollar weakness and central bank demand. As these conditions persist, we are likely to see the gold price maintaining its bullish momentum and climbing towards the US$3,000 milestone.
The writer is research analyst at Phillip Securities Research
