Here is the headline for decision-makers: gold above US$3,600/oz in 2025 is less about animal spirits and more about a regime shift in global reserves, rates and risk. The World Gold Council has logged back‑to‑back years of net central‑bank purchases above 1,000 tonnes, a pace not seen in decades. Meanwhile, investors are betting on further US rate cuts and a softer dollar—classic conditions that amplify gold’s appeal. As Andrew McAuley, Chief of Investments at UBS Global Wealth Management Australia, frames it, gold functions as a “geopolitical hedge” in the current environment, with UBS running a low‑single‑digit allocation across portfolios.

Signal vs noise: three engines behind the surge

Use a simple stack: geopolitics, real yields, and reserve diversification.

Geopolitics: Conflicts in the Middle East, a volatile Russia–Ukraine front, and hardening US–China strategic rivalry have boosted demand for assets with no counterparty risk. In stress regimes, gold’s liquidity and portability matter more than its lack of yield.

Real yields and the dollar: Gold’s inverse correlation with US real yields and the DXY remains intact. Markets are pricing a multi‑cut Fed path into 2025–26; each incremental basis point decline in real yields mechanically raises the opportunity cost of not owning gold. A softer dollar amplifies non‑US demand.

Reserve diversification: Central banks—particularly in emerging Asia—are steadily reallocating reserves away from US Treasuries into bullion. China’s share of US Treasuries has trended lower over recent years; at the same time, official sector gold buying has been robust for two consecutive years and remained strong into 2024. This “sticky” bid is less sensitive to price than ETF flows, compressing downside.

Business impact: P&L, cash flow and cost of capital

Mining and resources: Australian producers benefit from the dual tailwind of record USD gold and a still‑discounted AUD. At US$3,600/oz and an AUD/USD near two‑thirds, the local price is north of A$5,500/oz—supportive for margins, reserve replacement and equity valuations. Expect higher exploration budgets and M&A interest, particularly in Tier‑1 jurisdictions.

Manufacturing and retail: Jewellers and electronics manufacturers face rising input costs and working capital intensity. Pricing power becomes strategic: premium brands can pass through; mid‑market players risk margin squeeze and inventory markdowns if prices whipsaw.

Financial services: Wealth platforms, private banks and super funds are fielding renewed client interest. Even modest model‑portfolio shifts (e.g., 2–5%) can drive sizeable flows across ETFs, Perth‑minted bars, and OTC swaps. Custody, vaulting and collateral solutions are a revenue line, not a footnote.

Macro spillovers: If global demand for Treasuries is structurally lower at the margin, US term premia could remain sticky. That supports gold’s medium‑term case while complicating global borrowing costs. For boards, this is a cue to recalibrate capital structure assumptions.

Competitive advantage: the early‑mover allocation

Portfolio construction: A disciplined 2–5% strategic allocation has historically improved risk‑adjusted returns when real yields are falling or geopolitical risk is elevated. UBS runs ~2% as a baseline; many CIOs use 3–5% with dynamic tilts. Oversizing invites drawdown risk when yields back up.

Exposure routes: Choose by mandate and governance.

• Physical/allocated bars: lowest tracking error, higher storage/insurance, suitable for long‑term hedging and treasury reserves.
• ETFs and listed products: efficient, transparent and liquid; useful for tactical tilts and rebalancing. Australian investors have access to physically backed vehicles listed on the ASX.
• Futures/OTC swaps: capital‑efficient but introduce counterparty and roll risks; better for sophisticated hedgers.
• Equities and royalties: leveraged exposure with operating risk; best treated as satellites, not substitutes for bullion.

Treasury policy: Corporates with USD exposure can consider gold as a complementary hedge to FX forwards, especially for tail risks where the AUD sells off and gold rallies. Establish board‑approved limits, counterparties, and accounting treatment (e.g., fair value through profit or loss under AASB 9), and stress‑test liquidity under margin calls.

Australia’s edge—and constraints

Australia is a top‑tier producer with world‑class geology, established infrastructure, and reputable refining via the Perth Mint. Exports have risen alongside global safe‑haven demand, positioning gold among the country’s most valuable commodities. For miners, the opportunity set is real: expand production, accelerate debottlenecking, and progress brownfield expansions while the AUD gold price is buoyant.

Constraints matter. Labour availability, energy costs, water, and permitting timelines are gating factors. Investors will reward disciplined capital allocation—high‑grading reserves, modular expansions, and royalty/streaming finance—to avoid the capex blowouts that plagued previous cycles. Downstream, minting and vaulting capacity must keep pace with institutional demand for allocated bars.

Technical deep dive: what’s different this time?

Flow composition: The last major bull market leaned heavily on ETF inflows; this one is anchored by official sector buying. That reduces price elasticity and can keep prices firm even when ETF holdings are flat or choppy.

Market microstructure: Tighter balances in the OTC market, a persistent Shanghai premium (a proxy for Chinese onshore demand), and robust retail bar/coin demand in Asia support spot tightness. China and India together account for over half of global jewellery and retail investment demand, providing a floor when Western flows pause.

Correlation regime: Gold’s beta to real yields has strengthened during policy pivots. If the Fed undershoots inflation or growth weakens, the negative correlation intensifies; if growth re‑accelerates and real yields rise, the relationship works in reverse. Build scenarios, not narratives.

Risk dashboard: what could derail the thesis?

Re‑steepening real yields: A hawkish Fed or upside inflation surprise could lift real yields, pressuring gold. A 50–75 bps move higher has historically shaved double‑digits from prices.

Official demand reversals: Central banks are price‑insensitive until they are not. A pause by a large buyer can spark momentum‑led selling, particularly if leveraged futures positioning is crowded.

Geopolitics cooling: A meaningful de‑escalation lowers the safety bid. Meanwhile, volatility in currencies (notably JPY and CNY) can cause episodic gold liquidation to meet domestic needs.

Operational risks: Physical mis‑matches, settlement delays, and collateral calls on derivatives can turn a hedge into a liquidity headache. Governance, not cleverness, is the antidote.

Outlook and boardroom actions

Base case: Easing US policy, a softer dollar, and steady official sector demand keep gold well supported through 2025. Upside tails come from renewed geopolitical flare‑ups or a faster‑than‑expected Fed cutting cycle. Downside risks concentrate around higher real yields and a pullback in central‑bank buying.

Actions for leaders:

• Set a strategic allocation policy: codify 2–5% core gold exposure at the fund or treasury level, with triggers for tactical +/- adjustments tied to real‑yield thresholds.
• Diversify implementation: blend physical/allocated holdings for durability with listed products for liquidity; keep derivatives strictly for hedging with pre‑funded collateral buffers.
• Stress‑test cash: model liquidity under 15–25% gold drawdowns and 100 bps real‑yield shocks; ensure covenants and hedges hold.
• For miners: prioritise returns on capital, modular expansions, and power efficiency; lock in margins with disciplined hedging, not blanket forward selling.
• For importers/retailers: build dynamic pricing and inventory turns; use options to cap upside risk without sacrificing all upside.

The strategic message is clear: treat gold as a portfolio ballast and a balance‑sheet tool, not a speculative bet. In a world short of trust and long on risk, that is an advantage worth owning.