​Gold has risen sharply in recent weeks, climbing past $4,000 per ounce and gaining more than 50% since the start of the year, as shown in Figure 1. The rally accelerated after September as investors reacted to a mix of geopolitical and macroeconomic developments. Prices surged as tensions in the Middle East intensified, driving safe-haven demand, but gold briefly lost momentum once a peace deal was reached, reducing immediate global uncertainty. However, expectations of imminent interest rate cuts and renewed tensions between the United States and China over rare earth minerals and retaliatory tariffs quickly offset that effect. Strong central bank purchases, continued ETF inflows, and a softer dollar have added further support, pushing gold to record levels and making it one of the top-performing assets of 2025 so far.

​So far, 2025 has been shaped by sharp swings in financial markets, driven by geopolitical shocks, shifting monetary policy expectations, and evolving macroeconomic conditions. The year began with strong risk appetite, fuelled by optimism over disinflation and AI-led corporate growth, but momentum faltered in April when the US announced sweeping “Liberation Day” tariffs, reigniting fears of a global trade war. Equity markets corrected sharply before stabilising in early summer, supported by resilient corporate earnings and easing volatility. Inflation has proven stickier than expected in most major economies, prompting central banks, especially the Fed and the BoE, to delay or temper rate-cut expectations. The US dollar weakened in the first half of the year, boosting gold prices to multi-year highs as investors sought safe-haven assets. Overall, 2025 has presented a complex mix of resilience and risk, leaving investors to navigate an unusually uncertain macroeconomic and geopolitical backdrop.
Inflation trends in 2025 have underscored the challenge facing central banks in the United States, the Euro Area, and the United Kingdom, with price pressures proving more persistent than policymakers had anticipated. In the US, headline CPI has eased from its 2022 and 2023 peaks but remains above the Federal Reserve’s 2% target. While core inflation has been slower to decline, driven by stubborn services and shelter costs. The Euro Area has seen a similar pattern, with headline inflation moderating on the back of lower energy prices but core readings staying elevated due to wage growth and resilient domestic demand. The UK has faced the stickiest inflation among the three, with both headline and core measures remaining well above target despite easing commodity costs—reflecting underlying pressures in the labour market and housing sector. As shown in Figure 1, inflation has come down substantially since 2023, the Euro Area is the only geography of the three that has maintained an inflation rate at or below 2% for multiple months. In contrast, the UK’s inflation rate has begun to soar again and remains well above 3% in recent months.
Interest rate policy has reflected these dynamics, with the Fed and the BoE both delaying widely expected rate cuts as inflation progress slowed in the first half of the year. The Fed has maintained rates at close to their multi-year highs, emphasising the need for sustained evidence of disinflation before easing. The BoE has lowered its interest rates more steadily in 2025 than the US, but the country has to balance cuts with currently rising inflation. In contrast, the European Central Bank has begun to signal a cautious easing path, supported by weaker growth data and a more pronounced decline in headline inflation across the bloc. Elsewhere, Japan’s policy shift away from ultra-loose conditions has stood in sharp contrast, underscoring the divergence in global monetary stances and adding a further layer of complexity to capital flows and currency markets in 2025.

​Since President Trump announced a pause on tariffs in early April 2025, equity markets have rallied significantly. As shown in Figure 1, the S&P 500 rallied by more than 15% in the past five weeks and closed last week with a positive performance in 2025. Despite this rally, market participants remain hesitant, as uncertainties regarding the long-term effects of tariff policies linger. Goldman Sachs, while acknowledging the positive momentum, still projects a significant chance of recession, having recently reduced their recession probability from 45% to 35% following the tariff pause and recent trade developments.

​In early April 2025, President Trump reignited trade tensions with sweeping tariffs - 10% on all imports and up to 50% for countries with "unfair" practices, hitting China hardest at 145%. China retaliated with up to 125% tariffs, blacklisting US firms and restricting exports of rare earths. Facing global backlash, Trump announced a 90-day delay for most countries (excluding China) and eased tariffs on key sectors like tech and pharma. Markets, initially hopeful over pro-business policies, turned volatile as concerns over aggressive trade moves mounted. The VIX spiked to 60 on Liberation Day - levels not seen since 2008 and 2020. Upon the delay of the tariff implementation, volatility eased quickly, as shown in Figure 1. Volatility levels have dropped to below 25, which is only slightly elevated compared to historical levels.