On September 2, spot gold briefly broke through the historic threshold of $3,500 an ounce, before settling just under that level at $3,494. This rally not only eclipsed the previous peak set in April but also cemented gold’s position as one of the best-performing assets of 2025. With a year-to-date gain of nearly 35 percent, the yellow metal has surged at a pace rarely seen in recent years, reflecting deep shifts in the global economy and investor psychology.
The question now confronting markets is whether this meteoric rise marks the beginning of a longer-term structural uptrend, or whether the metal has climbed too quickly on the back of fragile expectations. The answer lies in the interplay of monetary policy, geopolitical uncertainty, and evolving patterns of demand across regions such as South Asia.
Global Drivers of the Rally
The most immediate catalyst for gold’s latest climb has been expectations of U.S. Federal Reserve rate cuts. In late August, Federal Reserve Chairman Jerome Powell hinted at loosening policy despite persistent inflation risks, citing softening labour markets and slowing growth. Investors responded swiftly, with markets pricing in an almost certain cut at the September meeting and at least one more before the year’s end. Gold, which yields no interest, becomes comparatively more attractive when rates fall. This mechanism has underpinned nearly every major gold rally in recent decades, from the financial crisis of 2008 to the pandemic turmoil of 2020.
Beyond rates, a deeper concern is weighing on the credibility of the
U.S. central bank itself. Political interference in monetary policy—highlighted by tensions between the White House and the Federal Reserve—has rattled confidence in the independence of one of the world’s most important institutions. The removal of senior officials and efforts to pressure the Fed into more aggressive easing have only amplified investor anxiety. This erosion of confidence in U.S. policymaking has, in turn, weakened the dollar and boosted demand for gold as a hedge against uncertainty.
Geopolitics has also played its part. The Ukraine crisis continues to cast a shadow, while U.S.–China trade frictions and new tariff threats have heightened volatility in global markets. Gold’s role as a safe-haven asset—timeless, tangible, and immune to sovereign default—has become even more pronounced in such an environment. Every fresh headline signalling tension tends to reinforce investor conviction that bullion remains the ultimate insurance policy.
Finally, central bank demand has been unrelenting. Many monetary authorities, particularly in Asia, are diversifying reserves away from the dollar. The People’s Bank of China has been among the most active buyers, reflecting both strategic considerations and a broader trend of de-dollarisation. Meanwhile, institutional investors have been funneling money into gold-backed exchange-traded funds. Holdings in the world’s largest such fund, the SPDR Gold Trust, recently reached their highest since mid-2022. These flows, from both central banks and private investors, have created a solid floor under prices.
While gold dominates headlines, silver has also staged a remarkable rally. Spot silver climbed above $40 an ounce for the first time since 2011, gaining more than 30 percent since January. Unlike gold, silver straddles both financial and industrial roles. Its growing use in solar panels, batteries, and electronics has added an additional layer of demand, particularly at a time when supply growth remains constrained. The narrowing gold-silver ratio suggests that silver may have further room to run, fuelled by industrialisation and the global energy transition.
South Asia’s Delicate Balancing Act
For South Asia, where gold plays a unique cultural and economic role, soaring prices carry both challenges and opportunities. India, the world’s largest consumer of gold, has already witnessed subdued demand in recent weeks. With local jewellery prices hitting record highs, many households have scaled back purchases, especially after the conclusion of the wedding season. Traders report that premiums on bullion imports have eased, reflecting weaker appetite among retail buyers.
Pakistan, too, is caught in a delicate position. On one hand, gold remains a vital store of value for households facing inflation and currency volatility. On the other hand, higher international prices translate into steeper import bills, straining the current account and putting additional pressure on the rupee. Policymakers in Islamabad must navigate this double-edged sword: while citizens seek refuge in gold, the economy bears the cost of rising imports.
In both countries, gold’s allure as a hedge remains undeniable. For rural households with limited access to formal financial markets, jewellery and coins remain trusted savings instruments. Yet as prices climb to unprecedented levels, the affordability of such assets becomes a question of economic inequality. Wealthier households can still accumulate bullion, but poorer segments may find themselves priced out, widening existing divides.
Forecasts, Risks, and the Road Ahead
Where does gold go from here? The outlook remains cautiously optimistic. UBS recently revised its target to $3,700 an ounce by the first half of 2026, while Bank of America has suggested prices could approach $4,000 in the same timeframe. JPMorgan has gone further, forecasting $4,250 by the end of 2026. Such projections are rooted in the view that structural forces—rising debt, de-dollarisation, and geopolitical fragmentation—will continue to underpin gold demand.
Yet not all is one-way traffic. Some analysts caution that much of the good news is already priced in. If the Federal Reserve follows through with a September rate cut, the immediate upward impact on gold may be muted, as markets have largely anticipated this move. Similarly, a resolution to major geopolitical conflicts—however unlikely in the near term—could erode one of the strongest drivers of safe-haven demand.
Investor behaviour also poses a risk. When assets rise too quickly, profit-taking often follows. A sudden wave of selling, triggered by nervousness at these lofty levels, could send prices down sharply. Moreover, if U.S. economic data surprises on the upside, undermining the case for aggressive rate cuts, gold could face renewed pressure.
The surge of gold past $3,500 per ounce is more than a market milestone; it is a reflection of the profound uncertainties shaping the global economy. It tells the story of investors grappling with inflation, distrust of institutions, and geopolitical turbulence. It also underscores how a metal mined for millennia continues to serve as the ultimate hedge in times of doubt.
For South Asia, this rally demands careful navigation.
Policymakers must balance the economic costs of higher imports with the societal need for financial security. Investors and households alike must weigh the benefits of holding gold against the risks of buying at the top of the cycle.
The balance of probabilities still favours further gains, though perhaps at a slower pace than the frenzied climb of recent weeks. As long as interest rates trend lower, geopolitical risks remain unresolved, and central banks continue to diversify, gold will retain its lustre. But the very speed of its ascent counsels caution. In the end, gold may shine brightest not in moments of euphoria, but in its enduring role as a stabilising anchor amid global uncertainty.
Mr. Qaiser Nawab, a global peace activist, is a distinguished international expert specializing in the Belt and Road Initiative (BRI), Afghanistan, Central Asia and founder of the Belt and Road Initiative for Sustainable Development (BRISD), a newly established global think-tank headquartered in Islamabad, in conjunction with the one-decade celebration of BRI.
