Since the beginning of 2025, gold prices in international markets have seen a consistent upward trend, culminating in a peak on February 11 when the London Spot price of gold surged to an impressive $2,942.71 per ounceOn the COMEX futures market, prices reached an even higher figure of $2,968.40 per ounce, drawing ever closer to the $3,000 mark that many analysts have predictedThis notable rise has sparked both interest and speculation among investors globally.

According to data from Wind, gold prices have increased by approximately 10% across both futures and spot markets within the short span of less than two monthsDemand for gold continues to exhibit remarkable strength, driven by central banks, institutional investors, and individual investors who all view gold as a valuable assetOver the past few years, the returns generated from gold have considerably outperformed those of equity marketsIn the last year, both central banks and retail investors have ramped up their gold purchasesIn early February, regulators approved ten Chinese insurance companies to acquire gold, with a limit of no more than 1%, which is expected to stir up an estimated buying demand of around 200 billion yuan.

Despite the robust demand, market experts have urged caution regarding investments in goldJust a day after shooting up to historic highs, on February 12 and 13, gold prices experienced a notable decline, underscoring the volatility and unpredictability of the precious metals market.

The surge in gold prices on February 11 reflected investor anxiety and market volatility

Advertisements

With the London Spot price reaching $2,942.71 per ounce, it exceeded some institutional forecasts, such as UBS's long-term prediction of $2,850 per ounceSimilarly, COMEX gold futures reached record levels during this period.

As of the evening of February 12, 2025, the London Spot price reflected a growth of 9.68% year-to-date, while COMEX gold futures reported an increase of 10.23% in the same timeframeIn the short term, announcements regarding U.S. tariff policies had a substantial impact on gold prices, complicating the investment landscape.

On February 10, U.SPresident signed an executive order imposing a 25% tariff on all steel and aluminum imports, which was met with immediate discontent from the European UnionThe tariffs, to be enforced starting March 12, sparked global trade tensions that could potentially influence gold market dynamicsEU Commission President Ursula von der Leyen expressed her regret over the tariffs, emphasizing that the EU would not overlook unjust duties, hinting at impending retaliatory measures.

Market analysis indicates that these tariff policies have prompted a shift toward safe-haven investments, leading to a spike in gold prices as inflationary pressures loom and economic conditions appear to weakenThis classic scenario of stagflation—where inflation rises while economic growth stagnates—has resulted in increasing market caution.

Indeed, worries regarding potential tariffs on precious metals have led to a notable movement of gold inventory from London to New York in recent months, raising concerns over liquidity issues in the London spot market and creating an environment ripe for price surges.

Data from Wenshu Futures highlights that since January 2025, the gold reserves in London vaults plummeted by 4.9 million troy ounces, marking the largest monthly decline on record

Advertisements

Concurrently, a historic outflow of funds from silver stocks further illustrates traders’ frantic attempts to move precious metals to the U.S. to avoid tariff risks and capitalize on potential premiums.

Following the spike to historic highs, gold prices experienced two consecutive days of declineExpectations of a slowdown in Federal Reserve rate cuts and updates on geopolitical conflicts have complicated the gold price trajectoryOn February 12, the Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.5% month-over-month and 3.0% year-over-year, exceeding economists' expectations for a growth of 0.3% month-over-month and 2.9% year-over-year.

Later that day, Federal Reserve Chair Jerome Powell indicated that although the Fed has made progress in curbing inflation, significant work still lies aheadHe emphasized that the Federal Reserve is close to, but has not yet reached, its long-term inflation target of 2%. Powell hinted that interest rates would likely remain elevated for the foreseeable future, which brings attention back to the trajectory of the 10-year U.STreasury yield.

David Scott, a senior analyst at Garstin Group, believes that the focus should be on the performance of the 10-year Treasury futures, noting that higher bond yields typically lead to increased pressure on non-yielding assets such as goldThe recent rise in the 10-year bonds underscores anxiety regarding America's inflation outlook, indicating that the justification for Fed rate cuts is presently inadequate, given the unemployment rate hovers at just 4% and core inflation measures exceed the 2% Fed target.

Aside from the changed interest rate outlook, recent geopolitical tensions have also contributed to the recent downturn in gold prices

Advertisements

Scott has noted signs of retail investors flooding into the Chinese gold market, which further dampened bullish factors for gold on February 12.

Scott considers the recent market pullback as a significant risk, interpreting the February 12 decline as a sign that gold may have reached a peakHe believes this reinforces the rationale for exercising caution in upcoming investmentsHe sees strong support for gold around $2,825 and resistance potentially at $2,942.70.

Both Scott and Zhu Shanying recommend that investors proceed with caution, keeping a keen eye on U.S. inflation data and developments in tariff policies.

Nevertheless, institutional outlooks on the long-term trajectory of gold remain positiveOn February 11, UBS raised its gold price forecast for the next 12 months to $3,000 per ounce, citing factors such as increasing global uncertainty and prolonged rate-cut cycles, along with robust demand from investors and central banks.

According to the World Gold Council, globally, gold demand reached a record high of 4,974 tons for 2024, driven by persistent purchases from central banks and an uptick in retail investment interest.

In particular, central banks have consistently acquired over 1,000 tons of gold yearly, culminating in total purchases of 1,045 tons in 2024. The final quarter alone saw significant accumulation, with central bank purchases soaring to 333 tons

This trend of acquiring gold emphasizes a strategic pivot among central banks toward greater reserves in the face of ongoing financial instability.

Official reserves data from the State Administration of Foreign Exchange revealed that by the end of January 2025, China's official gold reserves amounted to 73.45 million ounces, with a gain of 160,000 ounces from the previous monthChina’s central bank has now increased its gold holdings for three consecutive months.

Beyond central banks, insurance companies and retail investors are increasingly becoming significant net buyers of goldData from the China Gold Association noted a rapid increase in China's gold ETF holdings, which surpassed 114.73 tons by the end of 2024, marking an increase of 53.27 tons, or 86.66% year-on-year.

Additionally, the National Financial Regulatory Administration has recently announced pilots for insurance money to invest in gold, aiming to diversify asset allocation and optimize insurance companies’ asset-liability managementTen major insurance firms such as People’s Insurance Company of China, China Life and Tai Ping Life will pilot investments in various gold contracts through the Shanghai Gold Exchange and additional specialized financial products.

Analysts estimate that these ten insurance companies hold investments close to 19 trillion yuan, and under regulatory limits, their total investments in gold could amount to nearly 200 billion yuan.

Despite a dominant prevalence of bonds in the investment portfolio of these insurance companies, recent rapid declines in interest rates have rendered bond yields less attractive

Advertisements

Advertisements