The rise in the gold price over the past two years has been extraordinary. After increasing by an average of 7.3% per year from 1971 to 2023, the price of gold in US dollars rose nearly 170% to peak at almost USD 5600 per ounce (po) at the end of January. This meteoric rally, followed by a sudden drop of more than USD 1000 po, fuelled concerns that a speculative bubble had formed, a paradox for what is typically viewed as the safe asset of choice.
Recent catalysts of gold demand
To assess whether the rally jeopardises future returns, it helps to consider the context. Three main forces drove the surge: rising geopolitical risk, growing concerns about macroeconomic and financial stability, and declining confidence in the US dollar.
Geopolitical uncertainty has increased markedly. Risks include the war in Ukraine, crises in the Middle East from Gaza to Iran, a sharp shift in US trade policy, US military operations in Venezuela, tensions with NATO allies over Greenland and potential action against Iran.
The economic backdrop has also grown more fragile. Beyond trade policy uncertainty, public finances, already weakened by the Covid pandemic, deteriorated further due to tax cuts and higher military spending since the war in Ukraine began. In addition, attacks by the Trump administration on the Federal Reserve raised doubts about the central bank’s independence and its commitment to price stability.
These concerns contributed to a sharp decline in the US dollar since early 2025. International investors responded by reducing exposure to US assets and the dollar. Many turned to gold, whose performance is largely uncorrelated with equity markets and has outpaced inflation since the early 1970s.
Central banks, particularly in emerging markets, also diversified reserves away from US Treasuries. The freezing of Russian foreign exchange reserves by the US, EU and Japan since March 2022, accelerated this shift. With few viable alternatives, emerging market central banks increased net gold purchases. Gold’s appeal lies partly in the fact that it is not subject to another sovereign’s jurisdiction. The Trump administration’s assertive foreign policy and perceived weaponisation of the dollar reinforced this trend.
The outlook for the coming quarters
The drivers of gold demand remain largely intact, suggesting the long-term uptrend of its price may continue despite the recent volatility. That said, a period of stabilisation would not be surprising.