Can the yellow metal become the new haven for central banks? World Gold Council weighs in

Gold has emerged as the best-performing major asset class in the first half of the year, rising 26% in dollar terms and setting 26 new all-time highs. The performance was driven by a combination of a weakening dollar, range-bound interest rates, and persistent geopolitical tensions, according to the Gold Mid-Year Outlook 2025 published by the World Gold Council.

Looking ahead, the council outlines three possible macroeconomic scenarios. Under the base case of continued economic normalisation, gold could post an additional 0-5% return in the second half of this year. However, in a more pessimistic scenario, marked by stagflation or recession, gold could rise another 10-15%. Even in a bearish case, the Council expects limited downside, projecting a 12-17% pullback if global risk appetite improves.

Trade-related and geopolitical risks did not just act as direct triggers; they set off broader market reactions that further amplified gold’s gains. According to the World Gold Council’s Gold Return Attribution Model (GRAM), these risks accounted for around 16% of gold’s return in H1 2025. This included a 7% gain due to reduced opportunity cost (primarily from a weakening dollar), a 5% momentum boost driven by strong ETF flows, and a 4% contribution from investor anxiety surrounding geopolitical tensions. 

The report attributes much of the gold rally to the growing perception that the dollar and U.S. Treasuries—once considered ultimate havens—are losing their dominance. The dollar had its worst start to a year since 1973, while U.S. Treasury inflows stalled amid investor uncertainty. Meanwhile, gold ETFs saw renewed investor interest, with assets under management rising 41% to $383 billion by mid-year, according to the council.

One of the defining macroeconomic shifts in the first half of 2025 has been the dramatic underperformance of the dollar, its weakest start to a year since 1973. This trend was echoed in U.S. Treasuries, historically viewed as a symbol of safety, which saw declining inflows by April amid growing uncertainty. According to the report, this new trade dynamic, fuelled by tense and often adversarial trade negotiations, played a central role in reshaping investor behaviour, especially in their flight towards safe-haven assets like gold.

Amid these shifts, gold exchange-traded funds (ETFs) experienced a resurgence, with global inflows coming from all regions. By June-end, gold ETF assets under management (AUM) had risen 41% to touch $383 billion. This surge was driven by a combination of soaring gold prices and heightened demand from risk-averse investors. In total, global holdings rose by 397 tonnes (valued at $38 billion), marking the highest month-end total since August 2022. The report highlights how these developments reinforced gold’s appeal as a hedge in a world fraught with macro and geopolitical instability.

Crucially, the report identifies what it calls a “new trade order”—a structural shift in global financial thinking where gold is increasingly seen as a strategic alternative to traditional reserve assets. The new order has redefined the investment logic for gold in 2025, transforming it from a traditional hedge into a dynamic and central pillar of portfolio risk management. Citing its own Central Bank Survey, the World Gold Council reports that 73% of respondents expect the share of USD reserves to decline significantly over the next five years, with gold expected to play a larger role.