Gold hits another record high, regret not buying more last year. What's driving gold prices?

In the early hours, the gold market once again staged a heart-stopping breakout—just as Fed Chair Powell's warning about the economic impact of the trade war faded, spot gold surged past the historic high of $3,372 per ounce, pushing the year-to-date gain for 2024 to 28%. Behind this ongoing gold bull market lie four intertwined driving forces, like four turbocharged engines working in unison.

The first engine is the continued weakness of the U.S. dollar. The dollar index has broken through key levels, hitting a six-month low, resonating with Powell's remarks that dashed market expectations of swift Fed action. When dollar-denominated gold meets a weakening currency, the price becomes 'more affordable' in the eyes of international buyers. This currency depreciation effect was vividly displayed in COMEX gold's single-day surge of 3.4%. A deeper driver comes from the market's bet on the Fed's 2025 rate-cut cycle—as U.S. Treasury yields continue to decline, the opportunity cost of holding gold is being systematically lowered.

The second thrust stems from global capital's frenzied pursuit of a 'safe haven in troubled times.' The Trump administration's strategy of wielding tariff threats to pressure countries to distance themselves from China is like dropping a bomb of uncertainty on the global economic chessboard. When growth expectations dim, inflation looms, and trade routes may shift at any moment, gold's safe-haven appeal becomes the best refuge for capital. This panic buying, combined with strategic allocations from central banks' continued accumulation, has added over 200 tons to global official gold reserves in just the past three months, building a solid physical foundation for gold prices.

The third momentum comes from institutional funds' repricing. As Citi locks in a year-end target of $3,500, Goldman Sachs aggressively raises its 2025 forecast to $3,700, and Morgan Stanley charts a path to $3,400, the market is witnessing analysts collectively reshaping gold's valuation framework. The butterfly effect of this expectation management is particularly critical at the turning point where gold ETF flows end a two-year outflow cycle and return to net inflows—after all, the acceleration from $2,500 to $3,000 in just 210 days far exceeds historical averages.

But what truly terrifies bears is the virtuous cycle formed by these four engines: dollar weakness enhances gold's appeal → safe-haven demand drives prices higher → central bank purchases solidify the floor → institutional repricing triggers follow-on buying. Even as Société Générale warns of 'potential exhaustion in the second half,' the gold market has shown remarkable resilience—every technical pullback attracts new marginal buyers to support prices. This self-reinforcing capital siphon effect may well be why JPMorgan dares to target $4,000 and Goldman Sachs envisions an extreme $4,200 scenario.

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