Amid deep uncertainties about the future of the US economy, gold has been rising quickly in 2025. Prices for the precious metal are up more than 25% YTD, while the stock market as a whole has given up a significant amount of ground since the beginning of the year.
Is it too late to buy the most prestigious precious metal, or will tumbling confidence support higher prices through the rest of this year?
Why Is Gold Heading for the Stratosphere?
The rise of gold prices has been closely linked to both expectations of higher inflation and trade worries. Inflation expectations among consumers are currently at their highest levels since the early 1980s, highlighting just how seriously the public is taking the risk of rising prices triggered by protectionist trade policies.
Those same trade policies threaten to disrupt supply chains and reduce business earnings. As usually happens in times of increased uncertainty, investors are looking to gold as an asset that can hold its value if inflation continues to erode the buying power of the dollar.
It’s worth noting that the current slate of concerns makes many other investment options unattractive. Stocks, of course, are being hammered by trade policy. Cash is likely to lose value if inflation heats up, making it a poor asset to pull back to.
Even US Treasury instruments, historically another safe haven asset class, are looking substantially riskier than usual. As a result, gold is one of the few safe places left for investors to put the money they are pulling out of other assets.
Finally, central banks, especially in emerging markets, have been padding their gold reserves. Like individual investors, these banks are turning to gold to provide safety and stability during a time of heightened financial and geopolitical risks.
Can Gold Continue to Rise?
With the spike in gold prices closely connected to uncertainty about the economy as a whole, further increases will likely depend on whether the economic situation stabilizes or not. At the moment, the trade war that seemed almost certain in early April appears to be in something of a pause.
The trillion dollar question is the President’s decision to delay tariffs above 10% on countries other than China only lasts 90 days, after which the market may very well once again be thrown into a state of shock if America’s trade policy hasn’t been clarified.
Indeed, a return of trade uncertainty looks increasingly likely. Despite claims from the White House that trade negotiations with China are underway, China has stated that no high-level trade talks are currently taking place.
Similarly, details on other trade negotiations that are supposedly underway have been quite elusive. Without concrete trade deals in place by the end of the 90-day pause, the market could sell off again. Such a selloff would very likely drive gold prices higher, especially if the return of tariff concerns caused US bonds to react as they did when the tariff policies were first announced.
The U.S. is also facing a shock slowdown in the consumer spending as evidenced by the fact that consumer sentiment took a nosedive after the announcement of the new tariffs earlier this month, and it’s quite possible that buyers will gradually draw down their spending in anticipation of harder times ahead. This would likely put additional pressure on corporate revenues and earnings, compounding an already difficult situation for US stocks.
A final consideration here is the possibility that the current administration could be intentionally pursuing a devaluation of the dollar in order to make American exports more attractive.
Though still largely speculative, reports of advisors close to the president discussing ways to actively weaken the dollar raise very real concerns for investors holding cash. If the dollar continues to weaken either by chance or by design, it’s very likely that the price of gold could continue to rise proportionately.
Is It Too Late to See Returns in Gold?
Even with gold already at record highs, it seems more likely than not that the precious metal still has room to run. Economic and geopolitical risks are still running quite high, and the lack of details about the progress the US has made on trade negotiations creates significant uncertainty about how the economy will be affected by higher tariff rates. This uncertainty could easily drive gold prices higher.
This is especially true if the United States slips into a recession later in 2025. Historically, gold prices do best during periods of recession and high inflation, a trend driven by a lack of investor confidence in stocks when the economy as a whole is performing poorly. With JPMorgan forecasting a 60% chance of a recession this year, it seems likely that gold will still have room to move higher as confidence erodes.
Even in the event that the economic outlook doesn’t deteriorate, gold could still have some decent long-term demand tailwinds. The continued building of AI data centers, for instance, is apt to support gold buying. The chips used to facilitate AI use small amounts of gold, and data center demand could revive the need for gold in electronics.
On the whole, gold looks like a fairly attractive defensive asset at the moment. With mounting worries about the global economic outlook and the possibility of the dollar continuing to weaken, gold may be one of the few safe haven assets left for everyday investors. Continued buying by central banks could also support higher prices, as the nations of the world will likely be looking to shore up their reserves.
With that said, it’s important to keep in mind that stocks will still likely outperform gold in the long run. Though downturns can cause large selloffs in stocks and equally large surges in gold, shares of high-quality companies like those making up the S&P 500 remain the benchmark for investment returns. Stocks may remain beaten down for some time while gold moves upward, but history strongly suggests that they will eventually regain their ground.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.