Gold price recovers as reasons for buying ‘remain in place, but are also compounding’

The gold price is recovering on Friday, up 0.8% to US$4,816 per ounce at the time of writing.

That’s still a long way off the record US$5,608 per ounce reached last month.

Analysts at Trading Economics said the gold sell-off earlier this week was triggered by the US President’s Fed chair pick, plus profit-taking.

Global asset manager, Sprott, runs one of the world’s largest gold bullion investment funds, the Sprott Physical Gold Trust (TSX: PHYS).

In an article last month, Sprott said gold was in a strong bull-run cycle with long-term tailwinds that are strengthening.

What got the gold price rising in the first place?

Let’s take a history lesson first.

Sprott explains that gold’s current bull cycle began in 2022 when Western authorities froze Russia’s foreign exchange reserves.

That event shattered the assumption of reserve neutrality and triggered a reassessment of what constitutes “safe” assets.

Gold, as a non-sovereign, non-liability asset, regained strategic importance for central banks seeking to insulate themselves from geopolitical risk.

Central bank purchasing is the primary reason why gold remains in a bull cycle amid a strong global debasement trade today.

In 2023 and 2024, China emerged as the dominant buyer.

Faced with severe stress in its property sector and mounting debt burdens, Beijing adopted a dual strategy: accumulate gold and allow the yuan to weaken against it.

The scale of Chinese purchases during this period was unprecedented, signaling a structural shift in reserve management priorities.

Last year marked “another turning point” for the gold price, according to Sprott.

Global trade and tariff wars intensified, deepening deglobalization and eroding trust among central banks.

The fragmentation of financial systems elevated gold’s status as the ultimate neutral reserve asset.

By mid-year, the narrative broadened, as investors woke up to the systemic debasement of fiat currencies and bonds underway.

Over the last four months of 2025, gold surged as the debasement trade gained momentum, driven by liquidity injections, monetary inflation, and a decline in confidence in traditional hedges.

What is the debasement trade?

Debasement occurs when the purchasing power of currencies is eroded. We’ve seen this play out with the US dollar.

The Australian dollar briefly traded at a three-year high of 71 cents last month. A year prior, the AUD was worth about 62 US cents.

The ‘debasement trade’ is an investment strategy whereby investors rotate out of paper assets, like bonds, and into hard assets, like gold, to protect against inflation and lower currency values.

Persistent geopolitical tensions and broader economic uncertainty also continue to support the gold price.

Sprott comments:  

Looking ahead to 2026, fiscal dominance is entrenched, with governments prioritizing debt sustainability over price stability, thereby ensuring that monetary inflation continues to grow.

Central bank diversification away from the U.S. dollar is expected to continue, with emerging markets likely to accelerate their gold accumulation as geopolitical fragmentation persists.

Investor flows into gold ETFs and physical holdings are likely to remain strong, supported by portfolio rebalancing away from long-duration bonds and into real assets. 

Will the gold price continue to run?

Bank of America is forecasting gold to reach US$6,000 per ounce.

In a note to clients, BoA analyst Michael Hartnett said (courtesy Kitco News):

History no guide to future, but avg gold jump past 4 bull markets ≈ 300% in 43 months which would imply gold reaching $6,000 by spring.

Some analysts are even more optimistic.

Julia Du from ICBC Standard Bank thinks the gold price could crack the US$7,000 per ounce mark, commenting:

I expect 2026 to be a year of heightened geopolitical risk and strong safe-haven demand, allowing gold to continue the volatile yet upward trend.

Central banks are likely to keep adding to reserves, institutional investors will increase portfolio allocations, and retail demand – especially in Latin America – should remain robust.

Combined with continued Fed rate cuts, these forces support a bullish bias.

Other experts are less ambitious with their forecasts.

Last month, Goldman Sachs raised its year-end forecast for the gold price to US$5,400 per ounce.

Sprott says:

While gold’s 2026 price action may not match its remarkable 2025 rally, the risk skew remains to the upside, particularly under renewed liquidity waves or geopolitical shocks.

What does this mean for ASX gold shares?

Australia is the world’s third-largest gold producer.

ASX gold miners are well-placed to continue benefiting from the gold bull run, which has driven their share prices higher.

The Minerals Council of Australia says gold exports rose 42% to $47 billion in 2024-25, and are forecast to grow a further 28% to $60 billion in 2025-26, before stabilising in 2026-27.

That will make the yellow metal our second-largest export behind iron ore, surpassing coal and natural gas.

Council CEO Tania Constable said:

This unprecedented surge is being driven by record global prices and expanding mine output, combining to deliver a renewed period of strength for Australia’s gold industry.

The council expects production to rise from 293 tonnes in 2024-25 to 369 tonnes in 2026-27.

New and expanded projects across the country – including mill upgrades, extensions and new mines – are set to add around 67 tonnes to national production.

Meantime, ASX gold shares have soared.

Over the past 12 months, the Northern Star Resources Ltd (ASX: NST) share price has risen 48%.

The Evolution Mining Ltd (ASX: EVN) share price has increased by 142%.

Newmont Corporation CDI (ASX: NEM) shares are 117% higher.

Perseus Mining Ltd (ASX: PRU) shares are up 85% over 12 months.

The post Gold price recovers as reasons for buying ‘remain in place, but are also compounding’ appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.