Gold Prices Surge to Record Highs – What’s Behind the Rally?
The S&P 500 in the US has risen by just 4%, while Australia's ASX 200 has seen a modest 2% gain in the same period.
The price of gold has surged past $2,900 per ounce, reaching a new all-time high this month. The precious metal has gained 12% since the start of the year, outperforming major stock markets. The S&P 500 in the US has risen by just 4%, while Australia’s ASX 200 has seen a modest 2% gain in the same period. This follows an exceptional 2024, where gold prices jumped 27%, marking the biggest annual rise in 14 years.
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The primary factors driving this rally include growing economic uncertainty, concerns over inflation, and rising demand from central banks. The potential impact of Donald Trump’s tariff threats and a shift in global reserve strategies have also contributed to the surge.
Factors Driving Gold’s Rally
Gold supply remains relatively stable, with production coming from various mining hubs across the world, including Africa, Australia, and Canada. However, demand fluctuates, driven by four key sectors: jewelry (50%), technology (5%), investment (25%), and central banks (20%).
Central banks have played a significant role in the latest price increase, buying gold to diversify their reserves. The demand from China and India remains a key factor, while investment in gold as a hedge against market volatility has also increased.
Why Investors Flock to Gold
Gold has long been regarded as a store of value, maintaining its purchasing power despite inflation. Unlike fiat currencies, which lose value over time due to inflation, gold retains its worth, making it an effective inflation hedge.
Additionally, gold serves as a safe haven asset during periods of economic and geopolitical instability. Historical trends show investors turning to gold during crises, such as the 9/11 attacks, the 2008 financial meltdown, and the COVID-19 pandemic. However, these spikes are often short-lived, with prices stabilizing within a few weeks.
Central Banks and the Currency Hedge Effect
Russia’s 2022 invasion of Ukraine and the subsequent freezing of its foreign reserves prompted many governments to increase gold holdings, fearing similar restrictions. This led to a record-breaking 1,082 tonnes of central bank gold purchases in 2022, followed by 1,051 tonnes in 2023 and 1,041 tonnes in 2024.
As central banks sell US dollars to buy gold, the US dollar weakens, making gold more expensive in dollar terms. This inverse relationship strengthens gold’s role as a currency hedge, especially against volatile currencies like the Australian dollar.
Economic Uncertainty and Trump’s Influence
The latest surge in gold prices is harder to pin on a single crisis but is likely driven by broader economic worries. Donald Trump’s return to office has reignited concerns over inflation, as his trade policies could lead to higher tariffs and a weaker global trade environment. Additionally, Trump’s unpredictable foreign policy has heightened geopolitical risks, prompting investors to seek refuge in gold.
Gold prices have historically anticipated economic turbulence. They rose ahead of post-pandemic inflation and started declining when inflation peaked in 2022. While it remains unclear why gold has reached record highs in 2025, analysts suggest that it signals unease about the global economy—and as history has shown, “gold loves bad news.”
