Mike Groll/The Canadian Press
Gold prices have been consolidating for the better part of the past four months – trading in a range of roughly US$3,300 to US$3,400 per ounce. While it’s not unusual for prices to chop around after a massive run-up, such as the 70-per-cent surge from the end of 2023 to its recent high back in April, 2025, the natural questions investors are asking are: What happens next? Is this loss of momentum the end of gold’s bull market rally of the past few years? Or is this just a pause in the price action ahead of a new leg higher?
Our view is that investors should expect the latter, not the former.
The most bullish development of the prior run-up was that prices surged despite traditional valuation drivers saying otherwise. What makes the bull case for gold rather intriguing, and why we think the next move in prices will be higher and not lower, is that the stars are aligning for the traditional drivers to now take over, at a time when uncertainty remains elevated and central bank demand is likely to continue.
For example, gold rallied to record highs of more than US$3,400 per ounce despite elevated real yields on 10-year U.S. Treasuries of more than 2 per cent (levels not seen since 2008) and a bull run in the U.S. dollar index (DXY, a measure of the value of the U.S. dollar relative to a basket of foreign currencies). The index surged toward multidecade highs of 110 back in January (prior to a recent slump). Normally, these two developments should pose as headwinds.
Instead, it has primarily been strong central bank buying, combined with global economic uncertainty and rising geopolitical risks, that drove the yellow metal to new record highs. For example, from the first quarter of 2022 to the second quarter of 2025, central bank purchases totalled over 3,600 tonnes – more than double than in the equivalent period before that (1,700 tonnes).
To demonstrate the impact that central bank purchases have had, we can look at some simple regressions. For example, a simple valuation model for gold that combines inflation, real interest rates and the U.S. dollar has a historically high R-squared of 0.84 (the proportion of gold price movements explained by those variables). It shows the time-worn influence those variables have on gold markets.
However, as mentioned, the link has weakened since COVID-19 took hold in 2020. That same model, from 2020 to present, shows a lower R-squared of 0.69. But by adding central bank purchases and global economic uncertainty, the R-squared since then jumps back up to 0.86.
A simple illustration, to be sure, but at a high level, this exercise demonstrates the influence monetary authorities and uncertainty have had in boosting gold prices.
Why the price of gold is surging
Gold, not canola or coal, is China’s No. 1 import from Canada – at least according to China
What is encouraging is that we now expect the typical fundamentals to start taking over, fuelling the next leg higher in gold prices in the process.
After Federal Reserve chair Jerome Powell’s speech at the economic conference in Jackson Hole, Wyo., last Friday, the key take-away is that the Fed looks set to resume its cycle of cutting interest rates beginning in September. The emphasis is that a series of cuts (plural) is on the way, not just one.
This, of course, will weigh on the U.S. dollar, which remains structurally overvalued after its prior run-up. These two factors – U.S. interest rates and the value of the greenback – have strong negative correlations with the gold price (and are why the price popped by 1 per cent last Friday).
To illustrate using our aforementioned model, all else equal, current market pricing of a terminal Fed funds rate of 3 per cent at the end of the cutting cycle, combined with a fair value of the DXY U.S. dollar index of 94, is enough to incrementally lift gold prices by US$400 per ounce (15 per cent toward US$3,800 per ounce) – and that is before investor sentiment and price momentum effects take over.
Moreover, the de-dollarization trend does not look to be over, either. Traditional value drivers will boost the yellow metal at a time when central bank purchases should continue, thanks to continuing geopolitical and economic threats from the White House.
Layer on lingering uncertainty from a global investor base, and this is a bullish combination that can put the US$4,000-per-ounce mark in sight.
Ways to invest
If our belief turns into reality, then investors can pursue multiple avenues.
The most obvious one is to buy physical gold itself, though the logistics of time to purchase and storage concerns weigh on the convenience of doing so.
The next-best option would be via gold-backed exchange-traded funds such as SPDR Gold Trust GLD-A or Sprott Physical Gold Trust PHYS-T. We also note that, with implied gold price volatility on a steady decline, down to 15 per cent from roughly 30 per cent back in April (and a 30th-percentile reading based on Chicago Board Options Exchange data back to 2008), this makes buying call options increasingly attractive for investors who are comfortable doing so.
There is also the flow through of higher underlying commodity prices to gold miners – whether it be the large producers that make up the VanEck Gold Miners ETF GDX-A or, for investors with a higher risk tolerance or who want a higher beta, the juniors in the VanEck Junior Gold Miners ETF GDXJ-A.
Not to mention the benefit higher gold prices will have on highly correlated peers such as silver and platinum group metals (platinum, palladium and so on).
Marius Jongstra is vice-president of market strategy at Rosenberg Research.