Despite near-term headwinds Gold still has upside

Since hitting an all-time high of $3,500 in April, gold has consolidated and generally traded sideways in a range between $3,200 and $3,400 an ounce. Does this mean the bull run is over?

A recent report by Metals Focus argues that while there are still plenty of short-term headwinds, the gold price remains well-supported, with a strong potential for further upside.

Headwinds for Gold

President Trump’s trade policy has been one of the primary market drivers over the last few months. Tariff worries initially drove stocks lower and gave gold a boost as a safe haven. But as it’s become clear that the president is using tariffs as a negotiating tool, worries have faded. He recently extended the country-specific tariff deadline to August 1.  

While the deadline extension creates more uncertainty, it also provides more time for negotiations, raising optimism that deals will get done. As concerns have eased, the markets have brushed off trade war worries, once again rising to record levels. We’ve also seen a moderation of the VIX (volatility) index compared to the spike we saw in the aftermath of “Liberation Day” on April 2.

Easing geopolitical tensions with the Israel-Iran conflict remaining limited in nature and a reduced fear of a trade war-induced global recession have also increased the “risk-on” sentiment in the marketplace, lowering safe-haven demand.

Rising U.S. Treasury yields, along with an anticipated slower pace for Federal Reserve interest rate cuts, have also created some headwinds for gold. Because gold is a non-yielding asset, demand tends to ease in a higher interest rate environment.

As Metals Focus explains, the price support in the physical markets we saw as tariff worries drove tons of gold from London to New York has also waned.

“Following the U.S. government’s decision on 2nd April to exempt precious metals from reciprocal tariffs, gold EFPs collapsed. As a result, CME inventories have since begun to decline. This trend is also reflected in the latest trade statistics: Swiss gold bullion imports from the U.S. hit a record high of 63 tonnes in April, followed by another 59 tonnes in May. Meanwhile, the UK also reported an increase in deliveries from the U.S. For both countries, the U.S. has been the largest bullion supplier in recent months, a reversal of the trend seen in late 2024 and early 2025, when the U.S. was their largest export destination.”

Further dampening gold demand, higher prices have squeezed gold jewelry sales in key Asian markets, including India and China. Metals Focus noted that in addition to a price-elastic response, “Jewelry demand has been affected by weak economic conditions and the fact that many markets have already entered a seasonally slow period for retail jewelry sales.”

Fuel for the Gold bulls

Despite these near-term headwinds, gold prices have remained well-supported and seem to have strong support around $3,200 an ounce.

We can see that the bulls aren’t dead in futures and ETF positioning.

In early July, net long positions in CME futures returned to levels we saw in April as gold was pushing to $3,500. Meanwhile, after modest outflows of gold in May, ETFs reported a return to gold inflows in June, with funds globally adding 74.6 tonnes of metal. Gold ETF inflows through the first half of the year were at levels not seen since the pandemic. In dollar terms, gold ETF assets under management (AUM) reached a new all-time high of $383 billion.

Central bank gold buying continues to support the market. In May, central banks globally added 20 tonnes of gold to their reserves.

Based on the World Gold Council’s 2025 Central Bank Gold Survey, the buying trend will continue. Of the 73 central banks that responded to the survey, 95 percent said they believe central bank gold reserves will increase over the next 12 months. A record 43 percent of the respondents indicated they expect their own gold reserves to expand. That was up from 29 percent in 2024.

This is part of a broader trend of de-dollarization. As a recent UBS note put it, the U.S. dollar is “unattractive.”

 U.S. weaponization of the dollar as a foreign policy tool has made many countries wary of holding greenbacks. More generally, the soaring national debt and the relentless borrowing and spending have undermined confidence in the dollar.

As Metals Focus notes, there is no sign that the rapidly deteriorating fiscal situation in the U.S. is going to improve. There is no political will to tackle government borrowing and spending.

“While the dollar’s role as the primary reserve currency is not under immediate threat, longer-term concerns about its stability continue to support gold.”

De-dollarization is one of the three macro factors supporting gold that I have identified, along with the likelihood of more inflation and recession worries.

Metals Focus pointed out that record stock valuations should be concerning, “reinforcing the case for gold as a diversification vehicle.”

And finally, one never knows when the next round of geopolitical tension will bubble to the surface. There are plenty of hot spots from Ukraine to the Middle East.

Metals Focus concludes, “Looking ahead, we maintain a constructive outlook for gold prices over the remainder of this year.”

“All these factors should underpin gold’s investment appeal. Even with the rise in investor positioning so far this year, outstanding positions remain below previous peaks. This leaves room for further inflows, which could drive gold prices higher later in the year.”

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