Introduction: The Gold Dilemma
It has long been known that Gold is considered a safe-haven asset that attracts investors in times of economic and geopolitical uncertainty. In recent years, gold prices have been significantly influenced by global events, in particular the ongoing conflict between Russia and Ukraine, as well as tensions in the Middle East related to Israel and Palestine.
The future trajectory of gold prices is now at a crossroads shaped by two conflicting forces: the potential for a geopolitical truce and the looming threat of inflation. On the one hand, successful peace talks could reduce demand for gold as a protective asset, driving prices lower.
On the other hand, ongoing trade wars and economic policies could spur inflation, making gold more attractive as a hedge against rising prices.
Geopolitical Uncertainty: Will the Truce End Gold’s Rally?
Historically, gold prices have risen in response to geopolitical tensions as investors have sought stability in the face of uncertainty. Ongoing conflicts in Ukraine and the Middle East have been significant contributors to the recent rise in gold prices.
Conflict in Ukraine
“Special military operation” in Ukraine continues and it has only escalated over the past year, leading to increased global instability. From the start of the conflict (February 24, 2022) to the present day, Gold is up 57%.
However, recent events point to a possible shift towards peace. On February 18, 2025, the administration of US President Donald Trump agreed to hold further talks with Russia to end the conflict, a departure from previous strategies that excluded Kiev. While Ukraine has expressed dismay at being left out of these discussions, the very prospect of de-escalation has already influenced market sentiment.
The Middle East is also a hotbed of instability, especially in relation to the Israeli-Palestinian conflict. Recent reports suggest a fragile truce between Israel and Hamas aimed at reducing the intensity of fighting. While this development is promising, the history of fragile truces in the region makes one cautiously optimistic.
The potential resolution of these conflicts could reduce the geopolitical risk premium that has supported gold prices. Investors may reallocate assets to riskier investments in anticipation of a more stable global environment. However, the fragility of these truces means that any resumption of tensions could quickly derail this trend.
Inflation and Central Banks: The Case for Higher Gold Prices Trump's Trade War
Trump Tariffs. Source: Sky News
Gold’s recent surge is driven not only by geopolitical tensions but also by mounting inflationary pressures, fueled by global trade disputes and expansive monetary policies. Former US President Donald Trump’s renewed tariff threats have disrupted global supply chains, accelerating inflation.
US Inflation. Source: Reuters
The latest US CPI data reflects this trend:
- MoM: +0.5% (expected: +0.3%, previous: +0.4%)
- YoY: +3.0% (expected: +2.9%)
- Core CPI: +0.4% (expected: +0.3%)
This higher-than-expected inflation strengthens gold’s role as a hedge, drawing investor interest. Reflecting this sentiment, Goldman Sachs raised its 2025 gold target to $3,100, citing strong central bank demand and inflation concerns.
Other Markers
China’s new policy has freed $27.4 billion for insurers to invest in gold, helping push prices to a record $2,928 per ounce. Concurrently, Chinese gold ETFs are seeing record inflows, reflecting robust domestic demand.
Gold demand levels. Source: WGC
Also, According to the World Gold Council (WGC), global demand reached an all-time high by the end of 2024, driven by surging central bank purchases in Q4.
With inflation lingering and central banks stockpiling, gold’s status as a hedge remains solid, supporting a bullish outlook heading into 2025.
Market Scenarios: Where Will Gold Go Next?
Despite the situation's duality, geopolitical risks remain elevated. Peace talks on Ukraine and the Middle East have yet to yield concrete results, while global agreements remain under discussion without clear outcomes. Meanwhile, escalating trade pressures from Trump are expected to be a significant market driver in the coming years, amplifying inflationary concerns and supporting gold's appeal as a safe-haven asset.
From a technical perspective, gold maintains a strong bullish rally on the daily timeframe, testing a key resistance level at $2,950, which corresponds to the Fibonacci retracement of 1.618. A decisive break above this level could open the way for a rally to $3,200, which corresponds to the 2.618 Fibonacci.
On the weekly chart, the next important target for XAUUSD is at the $3,300 level, coinciding with the 2.618 Fibonacci ratio. The $3,200 - $3,300 range is expected to serve as the primary target zone for gold in 2025, which is in line with Goldman Sachs and Citigroup (NYSE:C)'s bullish outlook. This combination of technical levels and institutional forecasts strengthens the case for continued upward movement in the coming months.
Conclusion
The outlook for gold continues to be driven by two opposing forces: potential de-escalation of the geopolitical situation and persistent inflation risks. While peace talks in Ukraine and the Middle East may dampen demand for the safe-haven currency, rising inflation caused by trade tensions and central bank policy continues to support gold prices. Technical analysis, together with key institutional forecasts, points to the possibility of further upside for the asset in 2025.
In this challenging environment, gold remains a critical asset for both risk management and inflation hedging.