Image: Bloomberg
Update: Futures prices for the metal have climbed more than 50% this year, breaching $4,000 an ounce for the first time.
Gold, a metal that neither yields income nor produces output, is having its most lucrative year in nearly half a century. In 2025 its price has leapt more than 50%, striking nearly $3,940 a troy ounce on October 6th, its highest level in real terms since the late 1970s. That rally has little to do with mine supply or jewellery demand. It reflects something deeper: a slow, broad-based erosion of faith in the financial order that used to underpin modern capitalism.
The initial spark came from renewed dollar weakness and market jitters over trade policy, as President Donald Trump returned to the White House. But the real fire has been lit by a growing unease over the direction of fiscal and monetary policy in the world’s biggest economies. In the United States federal deficits have surpassed 6% of GDP for three years running. The Congressional Budget Office expects that figure to leap further as tax cuts, defence spending and interest payments mount. Trump’s public berating of the Federal Reserve, coupled with hints at replacing its leadership, has raised fears about the central bank’s independence. Investors, long comfortable with the idea of “risk-free” Treasuries, are starting to reconsider.
That shift is visible in how gold is being used. In past cycles it was a tactical hedge, something to hold briefly during crises. Now it is being treated as a strategic allocation. Asset managers like Morgan Stanley and Bank of America suggest that the conventional 60/40 equity-bond portfolio is giving way to a 60/20/20 model, where gold claims the same footing as fixed income. The rationale is that if bonds no longer provide reliable protection during equity drawdowns (either because of low yields or their correlation with inflation) then investors must look elsewhere. Gold, offering no yield notwithstanding, has performed its role as a diversifier with unnerving efficiency.
This reallocation is moving real money. Net inflows into gold-backed exchange-traded funds (ETFs) have hit $60bn this year, a new record. ETF holdings now outstrip 3,800 tonnes, approaching levels last seen at the height of the covid-19 panic in 2020. These funds have made gold liquid and accessible. As prices rise the inflows deepen, a feedback loop that accelerates momentum. Some investors are motivated by fear; others by envy. Both reinforce the same trade.
Central banks, especially in the emerging world, have added to the momentum. Since 2022 when the West froze Russia’s foreign reserves, monetary authorities in China, India, Turkey and the Gulf states have accelerated gold purchases. China’s central bank has increased its gold holdings for 23 consecutive months. Reserve managers value gold not just for diversification but for insulation too. Unlike dollars or euros it cannot be sanctioned, seized or printed. Roughly 17% of all gold ever mined is now held by central banks, up from 10% two decades ago.
Retail demand has added further ballast. In India households hold an estimated 25,000 tonnes, more than four times the official U.S. reserves. Gold purchases spike during festivals and weddings but rarely vanish even when prices soar. In China gold’s appeal has grown as property markets wobble and capital controls persist. Retail investors buy bullion not to speculate, but to preserve. This decentralised, cultural demand acts as a price floor: when institutional flows falter, retail buying picks up.
The surge in gold is not simply a reflection of inflation fears, though those play a part. More fundamentally it reflects anxiety that inflation itself may become a policy tool. With public debt at record highs across developed markets, some investors suspect that governments may tolerate, or even encourage, inflation as a way to erode real liabilities. This “financial repression”, keeping real interest rates below inflation, would favour debtors, including the state while punishing savers. Gold offers insurance against that silent expropriation.
Its appeal lies in its neutrality. Gold produces no income and carries no issuer and comes with no political strings. In a world where financial assets can be frozen or sanctioned at will, its lack of counterparty risk is precisely the point. For both investors and central banks, gold offers a rare quality: freedom from the system itself.
Of course the metal’s ascent could falter. If U.S. fiscal policy stabilises, if central banks reassert independenc and if inflation is brought under control, gold may look expensive. A rising dollar or real yields could dent demand. And past bull markets—in 1980, in 2011—have ended abruptly once macro fears eased.
But the structural drivers of today’s rally feel less cyclical than before. Debt loads are high and rising. Geopolitical fractures are widening. Monetary credibility, once taken for granted, is increasingly conditional. In that context, gold’s renaissance may be less about its intrinsic merits than about the diminishing reliability of everything else.
In past decades gold was mocked as the investment of paranoiacs and cranks. In 2025 it is the asset of pragmatists—those who no longer trust the system but would prefer not to say so aloud. ■
