According to the CME FEDwatch site, the U.S. market sees three interest rate cuts for the remainder of this year - in September, October and December. U.S. President Donald Trump has repeatedly called for lower interest rates and on Thursday indicated he may announce the new Federal Reserve Chair as early as later this summer (The term for the current Fed Chair, Jerome Powell, ends in May of 2026). This move is viewed as a way to minimize outgoing Fed Chair Powell’s impact on Fed policy decisions. Chairman Powell has stated his concerns on the inflationary impact of tariffs as part of the reason for being cautious on reducing interest rates.
The U.S. unemployment rate remained at 4.2% in May of 2025, unchanged for the second consecutive month, and has been within a 4.0%-4.2% range since May 2024. While the unemployment rate stayed steady, the number of employed persons decreased, and the labour force participation rate declined.
Adding to the mix are current conflicts and geo-political trade tensions, which can drive flows into gold as a safe haven. The ceasefire currently in place between Iran and Israel and trade negotiations between China, Europe, Canada and others with the United States evolve daily.
This all has a bearing on where gold is heading given that when interest rates fall, gold typically rises (since its appeal increases compared with yield-bearing assets and the underlying US dollar is weakened).
Recent gold price moves
The price of gold has been in a steady upward trend since October 2023, almost doubling in that time from US$1,800 to the current US$3,300. (For a live quote of the most active gold futures contract at the moment, August, click here.)
Let’s look at these relationships in more detail and where gold may be heading.
Supply
Based on 2024 production, here are the top five gold producing countries: China at 380 tonnes (11.5 per cent of global production), Russia with 310 tonnes (9.4 per cent), Australia at 290 tonnes (8.8 per cent), Canada 200 tonnes (6.1 per cent) and the United States at 160 tonnes (4.8 per cent). With the two largest gold producers having a combined 20 per cent of production, geopolitical concerns can have an impact on price. Recycling volumes are also rising, up four per cent year over year to the end of the first half of 2024 at a total of 335 tonnes. As the price of gold continues to rise, exploration also increases and new mines are being considered.
Demand
Jewelry accounts for 44 per cent of global demand followed by investment (bars, coins) at 25 per cent, central banks 23 per cent and technology consumption 8 per cent. Central banks are expected to continue their strong gold buying trend in 2025, with some forecasts predicting as much as 1,000 tonnes this year, another year of record purchases. This buying is driven by factors like economic uncertainty, diversification away from the US dollar, and geopolitical tensions.
Interest rates and the U.S. dollar
Rising interest rates are associated with a stronger US dollar and a decline in the price of gold. When real interest rates (the stated or nominal rate less inflation) rise, investors move to higher return opportunities like bonds and stocks. When real interest rates fall, the price of gold increases as gold is more attractive relative to other investments. After dipping sharply to as low as -7 per cent in 2022, real interest rates have been positive in the one to two per cent range for the last two years.
Inflation/recession:
Inflation rates have been falling since they peaked in June of 2022. During times of high inflation, investors move to gold as a safe-haven investment because high inflation generally means negative real interest rates. Higher inflation gives the Fed more latitude to raise rates at upcoming meetings. The probability of a recession has been falling since it peaked in May of 2024. The price of gold typically rises during a recession as interest rates are falling and investors seek out options to hedge against a market downturn.
Analyst outlooks
With all of the above, we are seeing analyst target prices anywhere from US$2,700 per ounce over the next 12 months to as high as US$4,000 per ounce. The majority of analyst targets are coming in at or above the current price of gold.
Summary
Most of these indicators (falling interest rates, rising inflation, geopolitical risk) tell us the price of gold still has support in the near term and should go higher if rates are cut through the fall and economic and geo-political uncertainty remain.
Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.