Gold continues its dream run in 2025. The yellow metal soared to yet another high after gaining over 65% so far this year. On Monday, spot gold hit an all-time high of $4,400 per ounce, largely attributed to reinforced expectations of a rate cut by the US Federal Reserve and rising geopolitical tensions.
Other precious metals like silver and platinum have also surged to new record highs.
5 reasons why gold is rallying to new highs-
So what is exactly driving the rally in gold? Let us have a look at five major reasons driving the prices of the precious yellow metal:
#1 High expectations of another rate cut by the US Federal Reserve
The US Federal Reserve cut rates by 25 basis points for the third straight time in December. Further, the Fed policymakers’ dot plot projection for 2026 only pointed towards one rate cut, with no projection of a rate hike in sight. However, owing to softer-than-expected US inflation data, rising unemployment in the US economy, and above-target inflation levels, markets are eyeing two additional rate cuts for 2026.
Precious metals like gold tend to do well in lower interest rate environments.
For the US Federal Reserve’s January meeting, traders eye a 20% chance of a rate cut, with nearly 80% expecting interest rates to remain the same, according to the CME FedWatch tool.
#2 Escalating geopolitical tensions
In December 2025, the US government actively intercepted and seized oil tankers near Venezuela as part of its enforcement of sanctions. The Trump administration sanctioned six crude oil tankers and related shipping companies and has put curbs on Venezuelan President Nicolas Maduro’s family. This has heightened geopolitical tension between the two countries, increasing the safe-haven demand for gold.
The prices of precious metals like gold tend to rise during times of political uncertainty, as it is a safe-haven asset.
Further, the Russia-Ukraine war continues to escalate, with media reports stating that Ukraine has launched over four drones on Russian oil tankers over the past weeks. The lack of optimism over ending the Russia-Ukraine war has increased the safe-haven appeal of the yellow metal.
Soaring tensions between Japan and China have also inched up the prices of gold.
#3 Tariff imposition
The imposition of tariffs by the US government sent shock waves across different nations and created an environment of uncertainty in the global trade market. With the Trump administration imposing tariffs as high as 50% on global trade partners like India and Brazil, the safe-haven appeal of gold increased.
These trade restrictions boosted the demand for gold, causing a price rally. Investors saw tariffs as a source of economic uncertainty and potential inflation, so they bought more gold as a safe-haven asset, pushing gold prices to record highs.
#4 Weakening dollar index
According to a report published by MUFG Research, the dollar index fell by 9% in 2025 on a year-to-date basis. The dollar index measures the strength of the dollar against a basket of six major currencies. The weakening of the dollar amid the rate cut has pushed up the prices of the yellow metal.
Traditionally, a weak US dollar and a lower interest rate environment help elevate the prices of the precious yellow metal.
#5 Strong buying by central banks
Gregory Shearer, Head of Base and Precious Metals Strategy at JP Morgan, said in a report that for the third quarter of 2025, central bank gold demand was over 50% higher than the average of the previous four quarters, totaling nearly 980 tonnes.
“We believe central bank demand will remain elevated next year and have been encouraged by strong buying in the third quarter of 2025, even with much higher gold prices,” Shearer added. He expects gold prices to soar to $5,000 per ounce by the end of 2026.
According to data published by the World Gold Council and JP Morgan, gold continues to make up a significant portion of the reserves of major central banks. For the US, nearly 81% of total reserves are held in gold, while countries like China and India have smaller shares of their reserves in gold, with China accounting for around 3–7% and India 8–15%.
Outlook for gold
Analysts added that despite the recent rise, gold prices are expected to remain range-bound in the near term. Prices spiked due to year-end buying, and upside may be limited in the short term because of profit booking. However, expectations of further rate cuts by the US Federal Reserve and rising geopolitical uncertainties keep the long-term outlook for gold positive.
Disclaimer: The purpose of this article is only to share data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.