Gold has been bullish since late 2022, with elevated central bank buying and a buying spree in China causing prices to nearly double.

Bank of America Corp (BAC), Citigroup Inc (C) and Macquarie Group Ltd. have been strong cheerleaders for gold during a breakneck rally that has pushed prices to record highs above US$3,000 an ounce. In the face of growing anxiety about the global economy, they see plenty of reasons to remain bullish.

Gold has been bullish since late 2022, with elevated central bank buying and a buying spree in China that saw prices nearly double in just over two years. Now, it is the bullion's proven status as a safe-haven asset that is attracting investor interest.

Prices breached the US$3,000 an ounce barrier on Friday amid growing angst over economic risks stemming from U.S. President Donald Trump's disruptive trade agenda. U.S. consumer confidence has plummeted, while inflation expectations have soared, and as apprehension grows, many analysts have been raising their price targets.

"We still think some materially bullish developments are likely for gold," said Marcus Garvey, head of commodity strategy at Macquarie, who raised the bank's top price target from US$3,000 to US$3,500 last week. "I really don't see things that suggest to us that this rally is in an area that has become frantic or overextended."

Here, illustrated in four charts, are the key factors that have Wall Street betting that the bullion rally has further to run.

ETFs

Investors are net buyers of physically backed gold exchange-traded funds this year, after selling them over the past four years. North America saw a significant inflow in February, the largest in a single month since July 2020, according to the World Gold Council. This was partly contributed to by sentiment stemming from the global rush to ship bullion to the U.S. to capture the large price differential between the New York Comex and the London spot market.

According to Citigroup analyst Max Layton, concerns about the slowing economy may also prompt U.S. households to try to diversify their portfolios by buying gold ETFs. "That's the big event that leads us to take the next step higher," he said.

"While there has been a lot of central bank buying and evidence of high net worth individuals buying in the last 12-18 months as a hedge against downside risks to U.S. equities and growth, households have yet to really buy, and potentially have only just begun," Layton said.

For Matt Schwab, head of investor solutions at Quantix Commodities, the fact that ETF holdings can continue to rise is crucial to gold's rally. ETFs played an important role in the precious metal's rally to record highs during the pandemic.

Although gold tends to thrive during prolonged periods of economic weakness, analysts warn that the bullion may suffer in the short term if there is a sharp sell-off in the stock market, as investors may choose to exit profitable positions in gold to cover losses in other sectors.

"Sometimes it can get complicated, as we have seen in the 2008/2009 period, we have seen the pandemic: gold takes a very hard hit along with all the other asset classes as well when there is a big risk aversion move," said Bart Melek, global head of commodity strategy at TD Securities.

Michael Widmer, head of metals research at Bank of America, agrees that gold could suffer short-term turbulence as investors take profits, but he still sees the bullion rising higher to US$3,500 in the long term.

Purchases could also reaccelerate in China this year, thanks to Beijing's initiative to allow insurers to invest in precious metals, according to Widmer. The policy could create 300 tons of additional demand, equivalent to 6.5% of the annual global market, he estimates.

A striking feature of gold's two-year bull run is that it has occurred despite a rebound in interest rates. Normally, higher inflation-adjusted interest rates act as a headwind for gold, because bullion does not pay interest and investors can earn safe and attractive returns in government bond markets.

But rising debt and deficits have meant that some investors are now pricing an element of credit risk into some developed economy government bonds, pushing some of them into gold, according to Macquarie's Garvey.

"Other than something like a failure to raise the debt ceiling leading to a technical default, I don't think anyone is arguing that the U.S. is ever going to default in dollar terms, and most countries are never going to default in local currency terms," Garvey said.

"But if you are running an unsustainable fiscal backdrop, then you are implicitly devaluing your own currency, and gold as a hard currency actually benefits from that."

Central banks were the main driver of the fierce gold rally in 2024. They have continued to buy the precious metal this year even as prices continued to rise, with 18 tonnes of net purchases in January, according to the World Gold Council.

China's central bank, which played a crucial role in gold's spectacular rally last year, expanded its gold reserves for the fourth consecutive month in February, with total holdings of 73.61 million ounces at the end of last month.

Goldman Sachs (GS), which raised its year-end forecast to US$3,100 just last month, now sees an even greater rally increasingly likely, driven by strong central bank buying and rising investor demand.

This is "because political uncertainty in the U.S. may support investor demand and because we believe central bank gold purchases will remain structurally higher," Goldman analysts said in an emailed note Friday.

Spot gold was up 0.5% to US$2,999.47 an ounce at 2:20 p.m. in New York. Silver, platinum and palladium rose.

David Marino, Bloomberg Line