• At the time of writing, the gold price is $3,986 an ounce, whereas a year ago it was only $2,700
• The leap from $3,500 to $4,000 an ounce of gold took only 36 days¹
• 76% of Central Banks surveyed expect to increase their gold holdings over the next five years²

Long regarded as a stable element within portfolios, gold can serve as a hedge against inflation, excess volatility, and currency fluctuations. In the hands of central banks, sovereign wealth funds, and private investors alike, gold’s enduring appeal rests on its scarcity, durability, and liquidity – qualities that have underpinned its status as a store of value for millennia.

Its modern allure lies in its low correlation to other asset classes. Because gold’s price tends not to move in tandem with equities or bonds, it lends portfolios a measure of protection when markets become unsettled. Yet, in recent months, gold has behaved curiously, rallying even as equity markets have done the same. This unusual behaviour runs counter to orthodoxy, which would dictate risk-off and risk-on assets move in opposite directions, and warrants a deeper look.

At the time of writing, gold sits just below $4,000 per ounce, having breached that symbolically important threshold in October, reaching as high as $4,230 per ounce only weeks ago. This marks the culmination of a remarkable rally. To put the rise in context, a year ago gold traded at just over $2,700, and three years ago it hovered around $1,790³. Indeed, the leap from $3,500 to $4,000 took only 36 days⁴ – unusually swift for an asset more often associated with decades of little to no price movement.

Three converging forces appear to be driving gold upwards

The first is the strong and sustained demand from central banks. Over recent years sovereign institutions have been steadily accumulating gold as a reserve asset to guard against inflation, currency devaluation, and geopolitical uncertainty. A recent survey found that of 73 central banks interviewed, 76% expect to increase their gold holdings over the next five years⁵. Indeed, central banks have purchased more than 1,000 tonnes of gold annually in each of the past three years, more than double the historical average of 400 to 500 tonnes⁶.

The second factor, and the one sparking the fiercest debate amongst investors, is the so-called US dollar debasement trade. In essence, this reflects a shift away from the dollar by international investors unsettled by the United States’ fragile fiscal position, concerns over the Federal Reserve’s independence, and eye-wateringly expensive valuations across US markets – this last point covered in the previous week’s article. With US indebtedness now far exceeding levels considered sustainable, some see gold as the last remaining highly liquid defensive asset, and with good reason – where else might investors have left to turn? The euro area’s largest economy, Germany, lacks its own currency-printing power, France is mired in fiscal and political issues, the United Kingdom is widely viewed as fiscally undisciplined, Australia and Canada are burdened by record household debt, and Swiss bonds, whilst safe, lack liquidity and any appreciable yield.

The final force, less rational but no less powerful, is “FOMO” – the fear of missing out. Investors have been piling in simply because gold has been performing well, creating a self-perpetuating rally as new buyers chase returns. Gold ETF inflows (new investment into funds which exclusively invest in gold) surged last quarter, up 134% year-on-year⁷, whilst analysts at Capital Economics and Bloomberg note a surge in retail interest, with Google searches for “gold ETF” rising sharply in step with prices.

Even so, gold’s rise has stalled recently. After peaking at over $4,300 per ounce in mid-October, prices slipped back below $4,000, selling down to $3,940 per ounce before stabilising⁸. The pullback likely reflected profit-taking and a reassessment of expectations for US interest rates as recent remarks from Federal Reserve officials have sounded less decisive about imminent rate cuts.

Where does gold go from here?

A recent Reuters survey of analysts and traders found an average forecast price of $4,275 per ounce for 2026, suggesting that some still see room for further gains, albeit at a slower pace. Many point to an erosion of confidence in the fiscal discipline of major developed economies as a key reason why many investors continue to seek refuge in gold⁹.

That said, the outlook is far from one-way. A growing number of analysts warn that the recent surge bears the hallmarks of a bubble; dramatic retail inflows, speculative positioning, and valuations that have drifted far from historical norms in a very short space of time. Capital Economics has cautioned that gold has moved “well beyond what fundamentals justify”, whilst Bloomberg notes record inflows into gold ETFs, much of it from retail investors, driving prices upwards.

In truth, given gold is impossible to value, and its price is a function of sentiment, no one can say with conviction where gold will go from here. What is clear though is that gold’s renewed popularity reflects a deeper unease about the stability of the global financial system.

Bowmore portfolios 

Despite the strong performance of Bowmore’s portfolios, we currently hold no direct exposure to gold. Our portfolios are designed to achieve broad diversification across asset classes, regions, and sectors, balancing risk-off positions against risk-on exposure to capture growth whilst limiting reliance on any single performance driver.

Because gold generates no yield beyond price appreciation, we prefer to allocate the defensive portion of our portfolios to high-quality bonds, where yields remain attractive across global markets. We also diversify through alternative funds such as property, hedge funds, and structured products, which offer low correlation to conventional markets whilst delivering a more consistent return profile.

Source: AlphaTerminal, data as at 06/11/2025

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.

Sources:
1. World Gold Council
2. World Gold Council
3. Trading Economics
4. World Gold Council
5. World Gold Council
6. CPR Asset Management
7. Finimize, World Gold Council
8. Trading Economics
9. Reuters