MUMBAI: Gold prices, which have already surged over 16% this year following a 22% rally in the previous year, could reach $3,500 (Rs 2,99,467) per ounce within the next 18 months—an increase of approximately 13% from the current level of $3,155 per ounce, recorded on Monday. This potential rise is driven by global uncertainties and strong investment demand, particularly from central banks, according to analysts at a leading Wall Street brokerage.
Uncertainty surrounding the Trump administration’s trade policies may continue to weaken the dollar, providing further support for gold prices in the near term. If the dollar’s weakness persists, gold could climb to the $3,500 mark, analysts at Bank of America Securities (BofA) stated in a note. The brokerage had previously projected gold prices to reach $3,000 per ounce, a milestone already surpassed with the current price standing at $3,155 per ounce, or 26.67 grams.
A broad rebalancing of the United States’ twin deficits could also be a bullish factor for gold, the analysts added.
Investment demand remains a key driver of gold prices. "Central banks currently hold about 10% of their reserves in gold, and this could rise to 30% to enhance portfolio efficiency," the analysts noted.
Additionally, the Chinese insurance industry has the potential to invest up to 1% of its assets in gold, an amount equivalent to approximately 6% of the annual gold market, they said.
Retail investors are also increasing their exposure to gold, with assets under management in physically backed exchange-traded funds (ETFs) rising 4% year-to-date across the Americas, Europe, and Asia, according to BofA.
For gold to maintain an average price of $3,000 per ounce this year, investment demand would need to increase by just 1%. However, for the metal to reach $3,500 per ounce, demand would have to rise by 10%. While this is a significant jump, BofA analysts believe it is achievable.
Potential risks that could cap gold’s upside include US fiscal consolidation, improving geopolitical stability, and a return to cooperative international relations, including the implementation of more targeted tariffs, set to take effect from Wednesday, the note said.
Gold delivered an impressive performance in fiscal 2025, with prices surging nearly 38%—its best fiscal-year performance since FY08—as investors sought safety amid global uncertainties, particularly concerns over US tariff policies.
Chinese insurers have already invested a total of $4.4 trillion in gold. Given recent regulatory relaxations, potential inflows into gold from Chinese insurers could reach $25–28 billion, BofA stated.
Additionally, Chinese companies are expected to actively purchase gold and utilise their investment allowances within a year. As insurers face declining returns in a low-interest-rate environment, gold remains an attractive long-term asset.
These factors combined could drive an additional 300-tonne increase in Chinese gold purchases, representing 6.5% of the annual physical market, the BofA report highlighted.
Meanwhile, total gold demand rose 1% year-on-year in the December 2024 quarter, reaching a new quarterly high and contributing to a record annual purchase total of 4,974 tonne, according to the World Gold Council (WGC).