What Gold’s Rise (Really) Means for the World

Metal is having a moment. Not this kind though, sadly. In October, gold extended its already furious run from last year and showed few signs of abating. Excitement is evident online, on shopping streets and in capital markets. Chinese mining company Zijing Gold recently raised $3.2 billion in one of the year's biggest IPOs. But it's not just a gold rally. Look at silver. In October, it reached its highest price per ounce in more than four decades. I think it is a warning sign that people are very anxious. Gold is the ultimate safe haven asset. A heart rate monitor, if you will. The health of the global financial system. And because of that, when you see a spike in the gold price, your first question should really be what's going wrong. Gold is the ultimate precious metal. It's been around since, say, the beginning of time. Gold has seen it all and survived through it all, and it probably will continue to do so. Because it's reliable, easy to trade and high value, despite lacking the intrinsic utility of a semiconductor or a shipping container full of these things. Gold has outperformed equities. It's outperformed almost every other asset class, if you take your starting point at 2000. It is the one asset that does very well when the typical parts of your portfolio go down. It breached $1,000 during the global financial crisis, $2,000 during Covid and $3,000 after the Trump administration's tariff announcements, which perhaps was a wake-up call. The dollar for many, many years has been seen as the haven of the market because people trust the US government and they trust dollar assets. Welcome to 2025. The dollar is the single biggest decline in six months in 50 years. Gold is at record highs. And here's what that looks like. This gold line, because why would it be any other colour, shows how much the metal has increased in value since January. The green line shows the dollar's depreciation over the same period. That discrepancy reflects what's called the debasement trade. It is the idea that faith and trust in the dollar is no longer what it once was, so you have investors looking at other assets. People do that trade when they are losing their confidence in traditional government bonds and fiat currencies. And in that situation, gold becomes quite appealing because there is no counterparty. It's just you and your gold. It's independent from the government's influence as well. Which is no longer something investors automatically say about the dollar or the US central bank. So the Federal Reserve has long been seen as kind of a bulwark of global financial stability. It has cherished independence from the political system in the US. Now the pressure on the Fed from the White House and President Trump has thrown that whole dynamic into question. Am I allowed to appoint myself at the Fed? I'd do a much better job than these people. How sustainable is the Fed's position given the position that President Trump is taking and given the pressure he's putting on the Fed to lower interest rates? If the Fed is slashing interest rates all the time... That makes gold more appealing because, unlike cash, it doesn't actually obviously yield interest. And so when interest rates are lower, gold becomes relatively more appealing. But on the other hand, you have inflation that makes gold appealing as a hedge. And inflation's back on investors' minds as Trump's tariffs risk driving prices higher around the world. So that's kind of a heads-I-win-tails-you-lose scenario for gold. Over the summer, the dollar fell to its weakest level in more than three years. While there are different views on what's behind that weakness, the takeaway is that the US isn't seen as the trusted ally it once was. But to find the source of gold's rally, we need to look back further than Trump's second term. A pivotal moment for the metal was in 2022, after Russia's full-scale invasion of Ukraine. G7 countries froze the assets of the Russian central bank that were held in Europe. That caused many countries around the world to think, we need to diversify away from the dollar in order to shield ourselves against potential future US sanctions or at least getting caught up in the dragnet of those. And by countries, we're talking central banks, which have been steadily adding to their gold reserves. In the early 2000s, they were selling a few hundred tonnes into the market every year. They've flipped that now. They're buying about 1,000 tonnes a year. And for the third year in a row in 2024, according to the World Gold Council. China, India, Poland and the Czech Republic have been among the biggest buyers. China in particular has been probably the most important central bank buying gold over the last couple of years. It's the biggest consumer of gold in the world. It's the biggest producer of gold in the world. Really, gold is a China story. People's Bank of China is trying to create or at least help to facilitate a world that's less dependent on the dollar. And one way of doing that for the PBOC is to reduce holdings of the dollar, such as the US treasuries, and buy gold instead. But halfway through the 20th century, the dollar became the world's reserve currency. If you want oil, you use dollars. If you want gold, you use dollars. If you want to exchange currencies, often the dollar sits in the middle of that transaction. Even most of China's exports are settled in the dollar rather than the yuan. The dollar made up nearly three quarters of the world's foreign exchange reserves in 2000, but its share has been slipping since then. Pressure on the Fed, with tariffs, inflation and sanctions in mind, it's prompted trading partners to look at the US and its currency in a different light. People are concerned with geopolitical tensions, with trade conflicts and Trump's chaotic tariff policies. And again feeds the idea that why is the world settling trade in dollars? What alternatives do we have? Demand for gold's also been boosted by gold-backed exchange-traded funds, or ETFs, which let investors bet on the metal's price without ever holding any. Maybe they don't have access to buy gold bars or to buy physical gold, but they have this access to ETFs. September was the biggest month of inflows that we've seen in more than three years. We saw that ETF inflows were six times larger than what a rates-based model predicts. And remember, this trend doesn't just concern the precious metal King Midas once mistakenly transformed a daughter into. Although he shouldn't be that upset, she'd be worth a fortune right now. Platinum and silver this year have rallied a lot more than gold. Now there's a nuance that can get lost in the discussion about precious metals other than gold. They're also useful. They're used in industry, they have real sources of demand. So those markets function a little bit differently than gold, but they tend to do really well when gold is well. It's partly about this debasement theme where people are worried about the ability of many developed economies to pay back their sovereign debts. And because of that, they're looking to other precious metals like platinum, like silver, and they're looking to cryptocurrencies. Gold and to some degree, Bitcoin, they are ways to express an opinion that the system itself is going to have some problems. When it comes to haven assets, the gold standard remains, well, you know. This gold rally speaks to the times we are living in. Not everyone's convinced currencies and bonds are so easily replaceable. A major de-escalation of Trump's tariffs or a peace deal between Russia and Ukraine could also spur a price decline. Volatility is very much still in gold's fine print. Still, Goldman Sachs and Deutsche Bank both say they expect gains to continue for now. With any rally, it naturally makes people worried. Is this a bubble? Is this going to pop soon? One thing it does have going for it is that the secular trends that have been supporting it over the last few years are still very much there. It's clearly a very fragile geopolitical moment. Old alliances are being tested. New alliances are being formed. And I think as long as these really steep tensions do persist, then that clamor for safe haven assets such as gold is going to continue.