Gold price has reached its highest level in two weeks on Tuesday, reaching $3,370 per ounce, following President Donald Trump’s firing of Federal Reserve Governor Lisa Cook. Trump’s decision, citing allegations of mortgage fraud, has sparked political uncertainty and raised concerns over the US central bank’s independence.
Fed Chair Jerome Powell suggested a possible rate cut in September, highlighting labor market risks but mentioning inflation as a threat. Markets predict a 83% probability of a 25bps rate cut next month, with investors awaiting the release of the PCE price index for further US monetary policy guidance.
“Amid increased political unpredictability following President Donald Trump’s dismissal of Federal Reserve Governor Lisa Cook, gold and silver are continuing their upward trajectory. The action increased doubts about the Fed’s independence and capacity to set monetary policy without interference from politics,” says Dr. Renisha Chainani, Head – Research at Augmont.
What a start it has been for gold this year! After clocking over 20% in the previous two years, gold is already up over 27% so far in 2025.
Gold has outperformed all other major asset classes and emerged as the best-performing asset so far in 2025.
So, where does that leave equity and bonds, the two primary asset classes in anyone’s portfolio?
Talking of equities, most major global stock market indices have delivered between 5% and 10% year-to-date.
Nifty 50 and BSE Sensex are up just about 6%. The global indices like S&P 500, Nasdaq and Dow 30 indices are a shade higher at 8%, 10% and 5% respectively.
Coming to debt, the performance has also been lackluster. The S&P U.S. Aggregate Bond Index has gained just about 5%, while the average return for the Debt Medium Duration category is under 6% YTD.
Gold’s performance in 10 years has been solid, generating nearly 11% CAGR, with the price rising from $1,111 to $3,350 in ten years.
Why is gold outperforming
Gold’s bumper performance cannot be linked to any one factor. From record-high purchases of gold by central banks to changing global geo-political scenarios, war-like situations, rising US debt burden and the Trump-initiated tariff trade wars, gold prices got a boost from each of these factors.
But the central theme remained the same – the fear factor. Investors turned to gold as a safe-haven asset amid economic and geopolitical uncertainty. No wonder gold has emerged as the best-performing asset so far in 2025.
Gold’s outperformance has not been only during the last 1-3 years. In fact, gold has outperformed all other major asset classes in recent years.
Headwinds for Gold
The big push in demand for gold has come from central banks. Why and when did central banks start hoarding gold? Read this.
But, according to the latest World Gold Council (WGC) data, central banks’ purchases are showing a falling trend in the first 2 quarters of 2025 – 244 tonnes of gold in Q1, and 166 tonnes in Q2.
That may not mean they are done being bullish on gold. The same WGC report reveals that 43% of central bankers plan to increase their gold reserves over the next 12 months.
The other big headwind for gold has been its own performance. Gold created a record price of $3,500 in April. Since then, it has been trading in a close range, unable to trend higher for lack of any fresh triggers.
Fresh Undercurrents
Why gold is performing better than other assets is something the world knows by now. For gold to move higher, it needs fresh impetus.
Gold’s potential for higher levels could be influenced by changes in US interest rates, dollar index movements, fiscal deficit, trade wars, and geopolitics.
A US Fed rate cut is likely to boost demand for the yellow metal. When rates fall, the demand for non-yielding metals like gold rises. This inverse relationship arises because lower interest rates reduce the opportunity cost of holding gold, making it a more attractive investment compared to interest-bearing assets like bonds.
The last rate cut was in December 2024 and the US Fed has yet to cut rates in 2025.
There’s another angle to it as well. If the US Fed goes for a rate cut in September 2025, as the market expects, it could signal something else — a crack in the job market.
Job numbers for June and July haven’t come in any better. Even though inflation doesn’t look completely tamed, US Fed chief Powell may opt for a rate cut if the economy weakens.
The US fiscal position is also not at its best, with a huge debt of $37.21 trillion, having paid over $1 trillion as interest so far in 2025.
The US Dollar is on weak ground, so far down 10% this year. The US fiscal numbers and the debt overhang remain a big concern that is threatening the dollar’s position as the world’s reserve currency.
Gold has become the second-largest reserve asset held by central banks globally, overtaking the EUR and now behind only the USD.
The geopolitical situation remains tense, with ongoing trade negotiations and the impact of Trump tariffs on global inflation and the economy remains in focus. A weakening dollar, high levels of policy uncertainty and renewed geopolitical risks have reinforced gold’s role as a strategic hedge.
Will Gold Move Higher
Cutting through the noise, gold investors want to know if there is any further upside for gold.
History shows gold has outperformed other assets when ‘fear is blowing in the wind’. Fears of a US default in 2011, banking collapse or the global financial crisis in 2008, or runaway inflation witnessed in 1979, all led to the gold prices outpacing other securities.
Gold prices have doubled over the last 24 months, owing to the fear factor, which includes both political warfare and deteriorating economic situations.
The easy answer to gold’s upside is this. If that fear persists, gold gains strength, and as those factors fade, we may see a significant drop in gold prices.
The short-term view looks to support the gold price. Going forward, at least two rate cuts are expected in 2025, especially after Powell’s speech at the Jackson Hole Economic Symposium last week. That will turn out to be supportive for gold.
Gold price today in India is Rs 1,00,450, after crossing the Rs 1 lakh mark on July 23. In the international market, gold trades around $3,375. That’s almost a 35% return in the last 12 months.
Whether gold can maintain its current gains in 2025, or possibly reach new highs, will depend on the way the US economy shapes up and how the global trade pans out.