Gold’s shine is intact despite choppy prices, says HSBC. Here’s why

Gold continues to demonstrate resilience even as price volatility remains elevated, with its long-term demand drivers still firmly in place, according to HSBC Private Bank and Premier Wealth. Rodolphe Bohn, Currencies and Commodities Strategist at HSBC, said that despite short-term swings, the metal retains its appeal as a hedge against uncertainty, inflation risks, and weakening confidence in the US dollar.

Gold has already posted one of its strongest performance years in decades, rising about 54% so far in 2025, making it the best annual gain since 1979. The rally has been supported by strong interest from retail buyers and persistent central bank purchasing.

Bohn noted that “gold is a powerful hedge during global economic uncertainty and enjoys strong demand from central banks and retail investors.”

After briefly reaching an all-time high of around USD 4,380/oz in October before correcting to USD 3,885/oz, the metal has since stabilised and resumed its upward trend. According to HSBC, the pullback represented profit-taking rather than a shift in fundamentals. The report highlights that “despite recent choppiness, gold’s upward trajectory continues, driven by fiscal trends and positive market speculation.”

Here’s what’s driving this rally:

Central banks remain key buyersOne of the strongest pillars of support for the gold market continues to come from central banks. Since 2022, the share of gold in global central bank reserves has increased from around 13% to nearly 22% by Q2 2025. During the same period, gold prices have surged by roughly 125%.Despite elevated prices, central banks are unlikely to significantly scale back purchases, HSBC said. The report notes that the primary motivations include diversification and long-term hedging against geopolitical, macroeconomic, and policy risks.

Bohn added that as uncertainties mount, including concerns about US fiscal health and currency trends, central banks have been reducing dollar exposure to “acquire gold more swiftly.”

Retail demand and ETF flows add momentum

Alongside official sector buying, gold-backed ETFs have seen a steady rise in holdings since mid-2024 as investors sought exposure to the metal without physically owning it. The increase reflects renewed retail participation amid inflation fears, equity market swings, and uncertainty surrounding US Federal Reserve policy.

HSBC said the demand trend may continue in the near term, especially if the Fed resumes rate cuts or if the US dollar weakens further — both conditions historically supportive of gold. While acknowledging that some short-term consolidation is possible, the bank stated that the broader outlook remains constructive.

Economic backdrop supports the long-term case

HSBC’s research indicates that gold is increasingly outperforming traditional correlations. While the metal typically shows a negative relationship with the US dollar and Treasury yields, recent movements also reflect behaviour as a liquidity buffer during volatile equity conditions.

However, HSBC does not view these shifts as evidence of a structural change in gold’s role. Bohn emphasised that gold remains a safe-haven asset, stating that “gold remains a crucial diversifier within a portfolio, helping customers navigate persistent global uncertainties.”

“However, we recognise potential negative risks to our view if the Fed unexpectedly adopts a more hawkish stance or if the global economic environment improves, despite the current positive correlation. Overall, given the anticipated weakness in the US dollar and further global easing, particularly from the Fed, there’s a basis for gold prices to rise, albeit at a slower pace than previously experienced,” the report added.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)