A new golden age?
Gold is glittering – it has risen 25% since the start of the year, topping USD 3,300 per ounce on 16 April, three times its value ten years ago. Alongside goldmines and the defence sector, it is one of the asset classes that is prospering most in the current chaos.
Yet if we look back in time, surges in the safe-haven metal are always either a precursor or accompaniment to a financial hurricane. At the end of the 1970s, gold climbed in the wake of massive inflation caused by the oil shocks. Its peak at the start of 1980 corresponds to the time when the US Federal Reserve embarked on a monetary policy so restrictive that it unleashed a recession.
In the early 2000s, gold began a long climb, accompanying the formation of a giant US real-estate bubble. The Great Recession that precipitated the bursting of this bubble in 2008 did not interrupt gold’s rise, which lasted throughout the European sovereign debt crisis triggered by the de facto default of Greece. Its peak in 2011 coincided with the first downgrade to the US sovereign debt rating, a symbolic event that traumatised the world’s leading power, even though it seems to have had no serious consequences for the financial world to date.
Its two recent peaks – during the COVID-19 crisis and then at the start of the war in Ukraine – also signalled periods of financial or geopolitical stress with considerable consequences, particularly the inflation that they ushered in.
What new global turmoil does gold’s surge herald this time?
The core assumption is a growing lack of confidence in the dollar, with repercussions that are difficult to imagine and should benefit alternative currencies such as gold. Having reigned supreme in international trade, the US dollar is seeing its status called into question. According to the IMF, its share of central bank reserves decreased from 65% in 2016 to 57% in 2024. To replace it, central banks worldwide have stampeded into gold. According to the World Gold Council, purchases of gold by central banks represented an average of 473 tonnes per year between 2010 and 2021. But since 2022 and the war in Ukraine, demand has exploded to more than 1,000 tonnes per year, driven by emerging countries in particular. China is not solely responsible: in 2024, the major buyers were the central banks of Poland, Turkey, India and China, in that order. Other assets such as the yuan and cryptocurrencies complete the range of alternative currencies, but their share remains tiny. For example, the yuan represents just 2% of global reserves. Whilst its potential to rise is enormous, there is little danger of it outshining gold, which has the advantage of being independent of any country.
The gradual move away from the dollar has recently been accompanied by the US desire to ease the straitjacket that surrounds any reference currency. This status of reference currency automatically results in structural overvaluation – since demand is unlimited – and thus renders exports less competitive. Remedying this problem lies at the heart of Trump’s economic ambitions. Weakening the dollar, including by encouraging the Federal Reserve to cut rates prematurely, will, in principle, provide a boost to exports of goods. This policy could go as far as to force a concerted devaluation of the dollar, as suggested by the rumours of an enigmatic Mar-a-Lago Accord. In this scenario, gold would play the role of a safe-haven asset, as no one can devalue it. And that’s why it is attractive.
Lastly, other economic factors are helping support the momentum around gold, in particular, inflation expectations, which are rising in the US due to the expected impact of increased trade tariffs on imported goods. Another factor is the lack of resolution on key conflicts, specifically in Ukraine, the Middle East and on the Red Sea.
These trends promise a glittering future for gold. But the strength of its rise raises questions, particularly in comparison to silver. The trajectory of these two metals is usually relatively similar. But in 1980 and again in 2011, when silver’s rise outstripped that of its twin, gold, a violent correction followed. The current situation is similar, but with the roles reversed. Caution is thus called for on gold, even if there will always be catastrophes to enhance its shine.