Gold shines with best H1 performance in 50 years, but H2 outlook clouded by uncertainty

Gold has emerged as the top-performing asset in the first half of 2025, rallying over 25% in just six months — its second-strongest first half in half a century, surpassed only by the late stages of the 1980s Gold Supercycle following the collapse of the Bretton Woods system.

While analysts and investors had anticipated a gold rally, few expected it to be this sharp or rapid. A "perfect scenario" of economic policy uncertainty, Middle East conflict risk, and a weakening US dollar helped propel the rally in H1 2025.

The outlook for H2, however, is far more complex. As gold prices climb and key supporting factors begin to fade, market watchers say investors must carefully evaluate gold's next move.

The current bullish case — dubbed Bull G-O-L-D — is based on four structural drivers:

• G = Geopolitics
• O = Official Reserves
• L = Long-Term Rates
• D = De-dollarisation

According to the IMF and World Gold Council, gold’s share in global central bank reserves has increased from 15% in 2023 to nearly 20% this year — a clear sign that gold is being repositioned as a core asset in the evolving reserve landscape.

The de-dollarisation trend is only just beginning. With the US dollar still making up over 60% of global reserves, the shift toward gold as a risk diversifier is likely to continue for years.

Should the US Federal Reserve cut rates in H2 due to economic weakness, gold could gain further momentum. Prices could surge past $3,500/oz, potentially heading toward the $4,000/oz mark — a record high in modern financial history.

The bear case, however, involves profit-taking by investors who believe gold has run too far, too fast. Historical data show that in the past 50 years, gold has gained an average of 2% in the first half and 6% in the second half. Only in 1980 and 2016 did gold rise more than 25% in H1, followed by corrections of 10–15% in H2.

In the worst-case scenario, 1980 could repeat itself — when gold surged due to fears of the Soviet-Afghan war and dollar instability, only to crash following Fed rate hikes.

If the Fed holds rates steady through year-end and inflation persists due to trade tariffs, profit-taking could intensify. Some of this appears to be underway: the World Gold Council noted selling pressure via ETFs at the end of Q2, while the Monetary Authority of Singapore sold a net 5 tonnes of gold in May.

Though these are early signs, if selling spreads, gold may enter a correction phase with prices falling to the $2,800–3,000/oz range — still a 7–20% gain year-to-date.

In my view, the most probable scenario is that gold finds a new equilibrium around $3,300/oz in H2 2025. Considering structural, cyclical, and market behaviour factors, this level presents both opportunity and risk.

For example, central banks seeking to shift reserves from the US dollar to gold may reduce or even reverse their purchases if gold becomes too expensive relative to a weakening dollar.

While the Fed’s neutral stance may pressure gold short-term, US fiscal uncertainty and a slowing economy remain longer-term supports.

Ultimately, H2 2025 isn't just about whether gold will rise or fall — the real question is what happens when a safe haven asset becomes so expensive it begins to resemble a speculative play.