Investment Commentary

In this investor research report, we explore Japanese investors’ attitudes to gold, such as gold’s shares in their portfolios, barriers to their gold allocation decisions and the potential for gold investment in the future. By assessing the current macro backdrop in Japan and studying local investors’ top needs, we believe gold has the potential to become a more relevant strategic asset in Japanese investors’ portfolios.

A strong rally into month-end saw gold reach US$3,429/oz (+4%), and as of the end of August, gold was up 31% for the year. The move was supported by a weaker dollar, heightened geopolitical tensions, robust gold ETF inflows, and rising expectations for a September rate cut. Looking ahead, stagflationary pressures in the U.S., the prospect of lower rates, and ongoing policy risks could dominate price dynamics, even as emerging market demand takes a breather.

Gold edged up 1.7% m/m in July and remains up 28% y-t-d. The move higher was supported by rising inflation expectations linked to tariffs, though gains were partially offset by a stronger US dollar. Strong underlying fundamentals suggest that the gap between prices and COMEX positioning is more likely to narrow through increased net longs positions rather than falling prices. 

The growing role of alternatives in institutional portfolios reflects a search for better returns and diversification. But these benefits come with trade-offs—like illiquidity and lagged valuations. This paper shows how gold can play a valuable complementary role. Its liquidity, low correlation, and performance during market stress make it a useful shock absorber alongside less liquid assets.

Gold rose 26% in H1 2025, outpacing major asset classes. As we look forward, consensus expectations macroeconomic drivers suggest that gold main remain rangebound in H2 with the possibility of some upside. Gold may move significantly higher if geoeconomic conditions deteriorate. Conversely, a widespread resolution of geopolitical risk, while unlikely, may measurably undercut gold’s y-t-d gains.

Gold has experienced an extended period of bull run since late 2022, prompting questions about potential catalysis for change in trend. Cooling risks, rising opportunity costs and easing momentum might curb gold’s current strength, while structural changes in gold demand or supply may bring longer-term weakness.

In May, tariff news and inflation helped but momentum effects including ETF outflows, countered, to leave gold flat for the month. Looking forward: Tariffs are starting to bite, but not where intended, pushing stagflation risks higher and hamstringing central banks.

As we entered 2025, expectations for the US economy were at their highest compared to the previous two years and there was widespread belief that strong growth and significant asset-price increases would continue in 2025. Investors are now growing increasingly concerned over the growth and inflation outlook, both at the US and global levels, from the fallout of the ongoing trade war.