Westpac says the drivers for higher gold prices are still in place, even though traditional analysis suggests it may have peaked

In an note to clients, Westpac analyst Richard Franulovich is saying that there are good reasons to believe there is upside to the currently high gold price.

While all the traditional pointers are that the yellow metal is peaking, he says that unusually the drivers of higher prices are also rising.

He suggests US$2900/oz or higher is a good possibility in the plannable future.

Ordinarily, elevated and rising real long term interest rates are not helpful for gold pricing. From 2007 to early 2022, the inflation-adjusted ('real') gold price tracked the 'real' 10 Treasury yields. That is fifteen years of close correlation. But since early 2022 the 'real' US Treasury yield has risen from -1% to +2% now. But the 'real' gold price kept on rising to its latest elevated level. This separation is unusual, at least in the context of the prior 15 years.

Westpac says: "China property market weakness (a key catalyst for private gold demand in Asia) is moderating, thanks to more forceful policy support. But sustained rebound, particularly in lower-tier cities is still a very long way off." In fact, because that period could be in the three to five year range, they reckon the delay for its effectiveness will turn out to be positive for gold demand in China, as a safe-haven asset holding. And meanwhile, uncertainties over economic performance and deflation in China will keep risk-aversion high.

They also point out that the combination of wars, especially the Russian invasion of European Ukraine, and the "thorny long-term questions about the politicisation of US government institutions" under Trump, should both should keep gold’s appeal as a diversification asset intact - "if not boost it still".

Although not especially large, rogue states and marginalised one are also accumulating gold (for their rulers - remember Syria's al-Assad absconded with most of the Syrian treasury's gold to Russia recently). And net purchases of about 200 tonnes per quarter (which it averaged for all of 2024) also underpin gold demand.

They have also noted that after falling from early 2022 until mid 2024, gold ETF holdings are rising again the new 2025 year, suggesting a broader base of participation is forming.

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