This article first appeared in Capital, The Edge Malaysia Weekly on October 13, 2025 - October 19, 2025

GOLD’s stunning surge to a new high of US$4,043 per ounce last week  has reignited debate over its safe-haven appeal, with experts warning that a pause in US rate cuts or a stronger dollar could trigger a short-term correction in the double digits.

As investors weigh bullion’s appeal against improving risk appetite in equities and bonds, foreign-exchange (forex) strategists suggest a price consolidation may be on the horizon. Markets are now digesting gold’s rapid gains, driven by US rate-cut expectations, dollar weakness and concerns over Washington’s fiscal fragility amid a government shutdown.

While the long-term fundamentals of central bank buying and geopolitical hedging remain intact, the strategists caution that a short-term correction of 10% to 25% could follow if the US Federal Reserve pauses its easing cycle or if the greenback steadies.

Gold, traditionally regarded as a store of value during volatile times, has surged some 55% since the beginning of the year (see Chart 1), following a 28% increase in 2024, making it one of the best performing assets of 2025. The commodity has outperformed global stock market recoveries, Bitcoin, the US dollar and oil.

“Gold will remain attractive to investors concerned about volatility, inflation and geopolitical uncertainties. It has outperformed all other commodity sub-asset classes, and this will remain the case in the fourth quarter. The gold price rally is a combination of sentiment-driven demand and physical buying,” says BMI head of commodities Sabrin Chowdhury.

“Market participants have now priced in a US Fed rate cut in October, with initial expectations hinging on the next cut being in December. The high likelihood of a rate cut so soon after the September cut has largely propelled gold prices towards US$4,000 per ounce, gold being a non-yielding asset.”

For now, gold’s glitter is real — but so is the risk of fatigue. Whether the rally holds will depend on how deeply the Fed cuts and how long Washington stays in gridlock.

Addressing the sustainability of the gold price surge, OCBC forex strategist Christopher Wong points out that it had entered “uncharted territories on multiple occasions this year and risen over 12% on average over the last 25 years”.

“Only during periods of rate hike, taper tantrum did we see gold make an annual decline. But, largely, gold has appreciated, against not just the USD but also against most majors and Asian forex. So, going by that trajectory, it is not hard to see projections heading north of US$5,000,” says Wong.

That conviction-driven buying theme resonates with private investor Ian Yoong, who observes that gold has risen has risen signifi­cantly  in 2025 and is on track for its third successive year of double-digit gains.

According to Yoong, the dollar’s weakness is the key driver: “The US dollar is on track for its worst year in 40-plus years, down 10% year to date.”

Still, the sharpness of the move has triggered questions over the sustainability of its trajectory, with OCBC’s Wong acknowledging the risk of a short-term pullback.

“The sharp run-up in a short period of time (about 7% in two weeks) and long positions seen in the Commodity Futures Trading Commission suggest some risks of overbought conditions,” he says. “In the event of any surprises — such as the Fed slowing its rate cut cycle, or an earlier-than-expected resolution from Congress — some of this run-up in gold may moderate in the interim.”

BMI’s Chowdhury also cautions that if the Fed decides to hold rates at its October meeting, gold could correct by 20% to 25%. “The US dollar is unlikely to have any large reaction on gold if the US Dollar Index remains stuck within 95 to 100.”

Having said that, both strategists still see room for upside if the Fed stays dovish. Chowdhury projects gold could head towards US$4,300 if the Fed cuts rates again next month. Wong points out that over the past 25 years, gold has averaged 12% annual gains and “has appreciated not just against the USD but also most Asian currencies”.

Meanwhile, Yoong expects the gold rally to lose steam around the US$4,000 per ounce level. He is certain of a 10% to 15% correction before gold prices approach US$5,000 per ounce at end-2026.

“The negative factors to this gold rally would be a peaceful settlement to the Ukraine-Russia war and the wide acceptance of stablecoins. The latter will put the brakes on US dollar weakness in the short term,” he says.

According to an Oct 3 World Gold Council report, central banks returned to buying in August by adding a net 15 tonnes to global reserves, following a pause in July. This figure is based on reported data from both the International Monetary Fund and central banks.

In August, the National Bank of Kazakhstan led central bank gold purchases, adding eight tonnes and bringing its total holdings to 316 tonnes. The National Bank of Bulgaria also joined the list of buyers, increasing its reserves by two tonnes, to 43. Meanwhile, the National Bank of Poland — the largest gold purchaser year to date — reaffirmed its commitment by raising its target allocation.

Also in August, the People’s Bank of China reported a two-tonne gold purchase — its 10th consecutive monthly increase — pushing total holdings past 2,300 tonnes, now accounting for 7% of its international reserves. The Central Bank of Uzbekistan likewise added two tonnes, raising its total to 366 tonnes, though still 17 tonnes below its end-2024 level.

Based on data available at the time of writing, the Central Bank of Russia (three tonnes) and Bank Indonesia (two tonnes) were the only sellers of gold. The reduction in Russian gold reserves is likely related to its coin-minting programme.

Addressing the rare gold sales by Russia and Indonesia, the World Gold Council says: “The recent gold price rally, which has reached multiple new all-time highs so far this year, likely remains a constraint on the level of buying by central banks. It may be a factor in more tactical selling, too. But the recent slowdown in buying does not necessarily signal that central banks as a whole are losing interest in gold. In fact, recent developments [as indicated above] show that central banks remain keen to continue increasing their exposure.”

Deutsche Bank pointed out in an Oct 7 report entitled “The future of central bank reserves by 2030” that the dollar’s share in global reserves slid from 60% in 2000 to 41% in 2025, while gold hit record highs on central bank buying (see Chart 2).

To this end, BMI predicts: “Gold prices are likely to head towards US$4,300 per ounce if the US Federal Reserve cuts rates in October, ceteris paribus, and remains on a dovish pathway in the coming months.”

Goldman Sachs last Tuesday raised its gold price target to US$4,900 per ounce from its earlier forecast of US$4,300 per ounce, citing strong Western exchange-traded fund (ETF) inflows and likely central bank buying. The following day, UBS raised its gold price forecast to “US$4,200 per ounce over the coming months”, and recommended that investors seeking portfolio resilience make a mid-single-digit percentage allocation to the precious metal.

Meanwhile, analysts are divided on gold’s technical standpoint.

The World Gold Council points out in an Oct 6 report that the gold rally is beginning to show signs of a potential slowdown after “exceeding its technical triangle resistance at US$3,840 per ounce, with daily, weekly and monthly RSI momentum all now deep in overbought territory and above 80”, and opening the door to a consolidation phase.

RHB Research observes in an Oct 9 note that gold’s closing price of US$4,070.50 reaffirms that a strong bullish momentum is in play and that if gold prices reach US$4,200 per ounce, a higher resistance at US$4,400 per ounce would be considered.

Habib Jewels Sdn Bhd (Habib Group) executive chairman Datuk Seri Meer Habib observes: “In a very short time, gold has hit the US$4,000 level. There are experts who are predicting that gold could even hit US$20,000 per ounce. But we are [tempering our expectations with caution]. Many people who have purchased [gold] from us are now taking profit. Having said that, even with the increase in gold prices, consumers’ confidence continues to be uplifted. It is encouraging for consumers to see last year’s [gold] purchases [appreciate in value] this year; therefore, this has encouraged the trading of gold.”

Meer says Habib Jewels has seen a 20% increase in overall sales this year and expects that Deepavali celebrations and year-end festivities will keep the momentum going. Habib Jewels’ gold jewellery segment makes up the lion’s share (65%) of the business, followed by fine jewellery (15%) and investment and trading (20%).

So far this year, the counters of jewellers Poh Kong Holdings Bhd (KL:POHKONG) and Tomei Consolidated Bhd (KL:TOMEI) were up 16.92% to RM1.14 and 12.42% to RM1.81 respectively as at last Wednesday. Aumas Resources Bhd (KL:AUMAS), which operates a gold mine in Sabah, was down 1.25%, however, to 79 sen.

At the same time, pawnbrokers experienced mixed results. The share price of ACE Market-listed Evergreen Max Cash Capital Bhd (KL:EMCC) advanced 5.48% to 38.5 sen, and Main Market-listed Pappajack Bhd (KL:PPJACK) dipped 4.64% to 92.5 sen even as Well Chip Group Bhd (KL:WELLCHIP) soared 44.74% to RM1.55.

“I invested in listed pawnbrokers in the first quarter and they have outperformed gold. Pawnbroking stocks are proxies for the rise in gold prices. The investment story is that a strong gold price supports the outlook for their growing loan books. Unlike gold, pawnbroking stocks pay dividends,” says Yoong, who has never invested in gold, opting instead to invest in pawnbroking counters for their dividends.

Whether gold pauses at US$4,000 or pushes higher, the message from the market is clear: Uncertainty still has a price, and it remains denominated in gold. 

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