Safe haven or overbought? Is gold's momentum built to last?

One for the record books

• a weaker US dollar
• rangebound yields with expectations of future rate cuts
• heightened geopolitical tensions – some of these directly or indirectly linked to US trade policy.

A new trade order

Conversely, gold ETF demand was particularly strong in the first half of the year, led by notable inflows from all regions. By the end of H1 the combination of a surging gold price and investor flight to safety pushed global gold ETF’s total AUM 41% higher to US$383bn. Total holdings rose by an impressive 397t (equivalent to US$38bn) to 3,616t – the highest month-end level since August 2022.

Trade-related and other geopolitical risks played a large role, not just directly, but by fuelling moves in the dollar, interest rates, and broader market volatility – all of which fed into gold’s appeal as a safe-haven.

• Risk and uncertainty – as a trigger for flows from investors looking for effective hedges: 4% (half of which was explained by an increase in the Geopolitical Risk (GPR) Index)
• Opportunity cost – making gold more attractive relative to the US dollar and bond yields: 7% (with the bulk or about 6% linked to dollar weakness)
• Momentum – which can boost trends or, equally, mean-revert them: 5% (mostly connected to positive gold ETF flows).

What to expect in H2

The second half of the year sits on a seesaw, with geoeconomic uncertainty keeping investors on edge. Inflation data have shown signs of improvement, but concerns remain that conditions could deteriorate quickly. Dollar-related pressures are likely to persist, and questions around the end of US exceptionalism may dominate investor discussions. Overall, these conditions position gold as a net beneficiary – but while the fundamentals remain strong, the gold price has already captured part of these dynamics. In turn, sustainable conflict resolution and continued rising stock prices could lure more risk-on flows and limit gold’s appeal.

Consensus expectations: continued normalisation

While an advance in trade negotiations is anticipated, the environment will likely remain volatile, as seen over the past few months. Overall, geopolitical tensions – particularly between the US and China – are likely to remain elevated, contributing to a generally uncertain market environment.

Impact of consensus expectations on gold

Technical indicators suggest that gold’s consolidation phase over the past few months is a healthy pause in a broader uptrend, helping to ease previous overbought conditions and potentially setting the stage for renewed upside.

However, elevated gold prices are likely to continue to curb consumer demand and potentially encourage recycling. This would act as a damper to stronger gold performance.

As we have discussed in the past, looking at consensus expectations often implies a rangebound performance, likely indicating that gold is efficiently reflecting all the currently available information.

Bull case: deteriorating conditions

This could be either a more severe stagflationary environment – marked by slower growth, falling consumer confidence, and persistent inflationary pressure from tariffs – or an outright recession, characterised by widespread flight-to-quality flows.

Bull case impact on gold

As we have seen historically during periods of heightened risk, investment demand would significantly outweigh any deceleration in consumer demand and rise in recycling.

Equally, COMEX futures net long positions currently sit near 600t, compared to levels above 1,200t during previous crises. This all suggests meaningful room for further accumulation should conditions deteriorate.

Bear case: risk resolution

A full resolution of risk does not seem as likely given what we’ve seen over the past six months. But more encouraging economic growth prospects, even if inflationary pressures were to persist, would push US Treasury yields higher, leading to a steepening of the yield curve. And if inflation stabilised further, the effect on rates would be more substantial.

Bear case impact on gold

In this scenario, our analysis suggests that gold could retreat by 12%–17% in H2, finishing the year with positive but low double-digit (or even single-digit) returns. This pullback is equivalent to the trade risk premium that partly explains gold’s H1 performance (see p4).

That said, lower gold prices would attract more price- sensitive consumers and discourage recycling, limiting gold’s downside compared to what may otherwise be implied by simply looking at real rates and the US dollar.

Conclusion

While some of these drivers are expected to persist, the path forward remains highly dependent on multiple factors, including trade tensions, inflation dynamics, and monetary policy.

A more volatile geopolitical and geoeconomic scenario could push gold significantly higher, particularly if more substantial stagflation or recession risks materialise and investor appetite for safe-haven assets grows.

In all, given the intrinsic limitations of forecasting the global economy, we believe that gold – through its fundamentals – remains well positioned to support tactical and strategic investment decisions in the current macro landscape.