For centuries, gold has been the go-to haven asset in times of political and economic uncertainty. Its status as a reliably high-value commodity that can be transported easily and sold anywhere offers a sense of safety when everything else is in turmoil.
Investors have flocked to bullion over the past year, in particular gold-backed exchange-traded funds, driven by President Donald Trump’s trade war, his threats to the independence of the US Federal Reserve, geopolitical tensions and concerns over ballooning government debt. Central banks have also continued to add to their gold reserves.
This has prompted the precious metal to notch a series of price records and eclipse its inflation-adjusted peak from 1980. It smashed through $5,000 per troy ounce for the first time in late January.
Why is gold considered a safe haven?
With hundreds of billions of dollars of bullion traded each day across multiple venues, the gold market is liquid enough for large investors to drop in and out without dramatically shifting prices. And as an asset without a counterparty, gold doesn’t rely on the success and creditworthiness of a company or state, unlike most financial securities.
Gold has historically been negatively correlated with the US dollar — it’s priced in dollars, so when the greenback weakens, bullion becomes cheaper for holders of other currencies. Most broadly diversified investor portfolios hold a hefty allocation to US equities and dollar-denominated fixed income assets, meaning gold’s ability to hedge moves in the greenback has become especially attractive.
Soaring government debt around the world has also shaken investors’ trust in sovereign bonds and currencies. In what’s been dubbed the debasement trade, a large number of investors have flocked to gold, silver and other precious metals, seeking a store of value to withstand a downswing in currency and bond markets as public finances deteriorate.
Investors have been closely watching the outlook for inflation in the US, too, as Trump piles pressure on the Fed to bend to his will and cut interest rates. Gold, which pays no interest, typically becomes more attractive in a lower-rate environment, as the opportunity cost of holding it versus interest-earning assets decreases. Investors have been betting that the next chair of the Fed — due to be appointed by Trump this year — will take a more dovish approach to monetary policy than Jerome Powell.
Is it just investors who purchase gold?
Beyond market movements, owning gold is deeply rooted in Indian and Chinese cultures — two of the world’s largest markets for the metal — where jewellery and other forms of bullion are passed down through generations as a symbol of prosperity and security. Indian households own about 25,000 metric tons of gold, more than five times what’s stored in the US depository at Fort Knox.
Demand for gold jewellery is a lot more sensitive to prices. When bullion’s appeal to investors in financial markets starts to fade, buyers of jewellery and bars often step in to grab a bargain, putting a floor under prices in the process. In recent years, demand for gold in its decorative form has continued to wilt, as prices grind ever higher.
Why have central banks been buying more gold?
The metal’s blistering price rally since the start of 2024 has partly been driven by huge purchases by central banks, particularly in emerging markets as they seek to reduce their dependency on the dollar, the world’s primary reserve currency.
Central banks have been net buyers of gold for more than a decade but accelerated their purchases in the wake of Russia’s invasion of Ukraine. As the US and its allies froze Russian central bank funds held in their countries, this underscored how foreign currency assets are vulnerable to sanctions.
The People’s Bank of China has been on a buying streak, adding to its gold holdings for a 14th consecutive month in December. Meanwhile, Poland’s central bank, which is the number one for reported purchases of gold, approved plans in January to buy another 150 tons as it braces for more geopolitical instability.
What could halt gold’s rally?
An increase in the value of the dollar, a major de-escalation of Trump’s tariffs, or a peace deal between Russia and Ukraine could spur a gold price decline.
The easing of geopolitical tensions that have flared this year could also cool demand for bullion, including the rift between the US and its European allies, as well as the threat of further US intervention in Latin America following the capture of Venezuela’s longtime leader Nicolas Maduro.
Any reduction in central banks’ net buying would remove one of the bull market’s most important drivers. The surge in the price of gold has lifted some central banks’ holdings beyond their target for bullion as a share of their reserves. A policymaker from the Philippines’ central bank recommended the sale of some gold in October.
Still, the central banks of developed economies have sold very little gold in recent decades compared to the 1990s, when persistent sales sent bullion prices down by more than a quarter over the decade. Amid concerns that those uncoordinated sales were destabilising the market, the first Central Bank Gold Agreement was struck in 1999, under which signatories agreed to limit their collective sales of bullion.
Does gold being a physical asset cause any issues for investors?
Owning gold typically isn’t free. Because it’s a physical object, holders have to pay for storage, security and insurance.
Investors buying gold bars and coins usually pay a premium over the spot price. There can be geographic price differentials, too, and traders take advantage of these arbitrage opportunities.
That’s what happened in early 2025. Fears that Trump could introduce tariffs on bullion imports pushed gold futures on New York’s Comex significantly above spot prices in London and sparked a worldwide dash to shift the metal to the US.
Gold is usually relatively simple to move, stashed away in the cargo holds of commercial aircraft, unbeknownst to the holiday and business travellers in the cabin above. But it’s not as straightforward as loading up a jet from Heathrow Airport to JFK thanks to a quirk in the global gold market: different size requirements.
In London, 400-ounce bars are the standard, while for Comex contracts, traders must deliver 100-ounce or 1-kilogram bars. That means bullion being sent to Comex warehouses has to first go to refiners in Switzerland to be melted down and recast to the correct dimensions. This creates a bottleneck when there’s a particular rush to rejig the location of bullion stocks.