Gold Prices Surge 15% as Central Banks and ETFs Fuel Rally

Gold prices have surged by 15% in just one month, marking their strongest rally in more than four months. This dramatic rebound has put the spotlight back on whether gold can repeat its 2025 feat and reclaim its fresh peak of $5,500 it touched earlier this year.

The precious metal had endured a volatile start to the year, surging to record highs in January before tumbling to $4,600 per ounce by August. The sharp correction came as renewed tensions over the Iran war sent oil prices soaring, fuelling expectations that the US Federal Reserve could raise interest rates later this year.

So what's driving gold's strength? According to World Gold Council data, robust ETF flows have seen about 23 tonnes of gold added to global ETF holdings. Central bank buying has also increased, with 288.9 tonnes purchased in the second quarter, a 62% increase from a year earlier.

Central banks remain on course for another strong year of net purchases, and their demand is expected to remain above its long-term average. The strategic case for gold remains firmly in place, with reserve diversification, protection against geopolitical and financial-market uncertainty, and gold's role as a long-term store of value continuing to feature prominently in central bank thinking.

Expectations around US interest rates are also supporting gold's rally, with traders pricing in a 61% chance that the Fed will keep rates unchanged next month. The US Treasury's bond buyback move has also been supportive for gold, as lower bond yields reduce the opportunity cost of holding the non-yielding asset.

Some experts believe that the recent pullback may have created an opportunity for investors to gradually start accumulating gold. Billionaire hedge fund manager John Paulson suggests that the precious metal could be at the beginning of a long-term bull run, citing growing demand from central banks and the private sector.