Gold Price Skyrockets to Record High — Fed Cuts and China's Reserves Trigger a Bigger Surge?

Gold has rocketed to a historic peak of $3,790 (£2,802) per ounce, cementing its position as one of the strongest-performing assets of 2025.

The surge follows the US Federal Reserve's latest interest rate cut, a weakening dollar, and central bank gold stockpiling led by China. Analysts are now weighing whether the momentum could propel prices to the symbolic $4,000 (£2,957) threshold before year-end.

Fed Cuts Fuel Safe-Haven Demand

The Federal Reserve's recent decision to cut interest rates by 25 basis points has reignited investor appetite for gold.

The move, which lowered the federal funds rate to a range of 4.00%–4.25%, was widely anticipated following signs of a softening US labour market and persistent inflation pressures.

Fed Chair Jerome Powell described the cut as a 'risk-management measure' aimed at supporting growth without reigniting inflation.

Expectations for further easing remain high. According to the CME FedWatch Tool, cited by FXStreet, markets now assign a 92% probability of another 25-basis-point cut in October, with a 73% chance of an additional move in December.

Lower interest rates reduce the opportunity cost of holding non-yielding assets, such as gold, making them more attractive relative to bonds and cash instruments.

China's Strategic Gold Play

China's role in the gold rally has become increasingly prominent. The People's Bank of China has reportedly invited foreign central banks to store part of their gold reserves within its borders via the Shanghai Gold Exchange.

This move is viewed as part of a broader strategy to enhance China's influence in the global bullion market and reduce its reliance on the US dollar.

China has increased its gold holdings for ten consecutive months, reflecting a deliberate shift in reserve composition.

According to the World Gold Council's 2025 Central Bank Gold Reserves Survey, 95% of central bankers expect global gold reserves to rise this year, with 43% forecasting increases in their own institutions.

Inflation-Adjusted Records and Dollar Weakness

Gold's nominal price surge has been matched by its inflation-adjusted performance. Analysts report that the inflation-adjusted price of gold has reached its highest level since the 1980s, exceeding $3,610 (£2,669) per ounce.

This milestone reflects the impact of persistent inflation, which erodes real returns on traditional assets and boosts demand for inflation hedges, such as gold.

Meanwhile, the US dollar has weakened significantly in 2025, losing over 10% against a basket of major currencies. This decline has made gold more affordable for international buyers, further enhancing its appeal as a store of value. The dollar's slide is attributed to trade tensions, fiscal uncertainty, and shifting global reserve preferences.

Investor Sentiment and Market Outlook

Investor sentiment remains bullish. Exchange-traded funds (ETFs) tied to gold have seen their fastest pace of inflows in over three years, with holdings expanding sharply in September.

Analysts at BMO Capital Markets suggest that 'with a rate-cutting cycle firmly on the table, risk-reward remains positive for prices into the fourth quarter.'

Veteran bond trader Jeffrey Gundlach recently forecast that gold could reach $4,000 (£2,957) per ounce before the end of the year, citing inflation, geopolitical risk, and central bank demand as key drivers.

Deutsche Bank analysts echoed this sentiment, projecting a full-year return of over 50% for gold if current trends persist.

Risks and Volatility Ahead

Despite the bullish outlook, some caution is warranted. Gold experienced a brief pullback following the Fed's rate cut, with prices dipping from $3,707 (£2,740) to $3,668 (£2,712) per ounce within hours.

This volatility underscores the sensitivity of gold markets to currency fluctuations and shifting interest rate expectations.

Moreover, not all Fed officials support aggressive easing. St. Louis Fed President Alberto Musalem and Cleveland Fed President Beth Hammack have urged caution, warning that further cuts could reignite inflation or destabilise financial markets.

Gold's record-breaking rally reflects a confluence of shifts in monetary policy, geopolitical uncertainty, and strategic reserve diversification. With central banks, particularly China, playing a decisive role, and investors piling into safe-haven assets, the metal's momentum appears strong.

However, volatility and policy divergence remain key risks. Whether gold can sustain its climb or breach the $4,000 (£2,957) threshold will depend on how global economic conditions evolve in the final quarter of 2025.