It is turning into gold’s best year in decades. Bullion has hit a series of record highs in 2025, putting it firmly on track for its strongest annual performance since 1979, when revolution in Tehran rocked the global economy.
Why is gold in such demand?
The short answer is that gold is acting as a haven and a store of value, a role it’s played for thousands of years, since the kingdom of Lydia started churning out gold coins in the sixth century BC. Investors can be a jumpy lot, and there are plenty of reasons to shift money out of riskier assets today – from fears of economic slowdown to rising geopolitical tensions between Russia and Nato.
As well as traditional valuation drivers such as interest rates, the dollar and inflation, concerns over Donald Trump’s attacks on the US central bank, his trade war, and his tax and spending plans are also pushing gold higher, analysts say.
Gold’s role as a store of value comes, in part, from its scarcity. According to the World Gold Council, if all the gold ever mined was gathered into a single cube, it would measure approximately 22 metres on each side.
Total supplies are rising by an estimated 1.7% a year. That means “no policy, no discovery, no quantitative easing of geology” can debase gold, says Stephen Innes, managing partner at SPI Asset Management.
That makes it attractive when investors worry that governments are losing their grip on the public finances – finding it politically unpalatable to raise taxes, and impossible to cut spending.
Copper, in contrast, can’t operate as a store of value as huge quantities are used, and consumed, each year, with demand set by the health of the global economy.
Platinum and palladium fail this test too, despite an ounce costing over a thousand dollars as new supplies are quickly swallowed up by industry.
Since 1 January, the spot price of gold has risen by a blistering 45% to a record high of $3,831 per ounce on Monday. That outpaces all other leading asset classes this year.
Gold hasn’t had such as strong year since 1979, when it jumped by 126% as Iran’s revolution led to a surge in the oil price, crushing investors’ hopes that inflation could be tamed.
A line graph showing the price of gold steadily rising since the 1970s
Data from Bank of America (BofA) on Friday shows that $5.6bn flowed into gold last week. Over the past four weeks, the bank says there were record inflows of $17.6bn.
BofA cautions that gold is tactically “overbought”, but structurally “under owned” – as it only represents 0.4% of private client assets under management. It is maintaining a long position on gold, indicating it expects the price to keep rising.
Gold has further to rise, analysts predict. Arnab Das, global macro strategist at Invesco, for example, says the gold rally still “has legs”.
“We see no true alternative to gold as a hedge against US risks and expect central banks to keep buying gold … In my view, central banks are buying gold because they see no fiat alternative to the dollar,” Das says.
Who is buying it, and why?
The World Gold Council says western investors and speculators have been the drivers of the recent price gains.
They cite two reasons. First, evidence that a slowing US economy will allow the US Federal Reserve to lower interest rates further. That means the interest on cash reserves will be lower, making it less attractive compared with gold (which doesn’t provide a yield).
Second, increased rhetoric against the Fed and its independence from the Trump administration is leading to concerns about the stability of the US dollar and the Treasuries market.
A bar chart showing how much the price of gold has grown since the late 1970s
Central banks have also been adding to their gold reserves in recent years. Notably China. Bloomberg reported this week that China aims to become custodian of foreign sovereign gold reserves in an attempt to strengthen its standing in the global bullion market, and become less dependent on the dollar and western centres like the US, the UK and Switzerland.
What about the Trump effect?
Overall, markets have not been badly hit by the jump in US tariffs this year to the highest level since the 1930s. But the most obvious vehicle of trade war worry has been the US dollar.
M&G fund manager Eva Sun-Wai told M&G’s Bond Vigilantes forum last week that this has led to a “broader de-dollarization trend, which has caused angst in markets”.
“And I think it’s a big reason why gold, for example, has become the safe haven choice,” Sun-Wai added, as investors go for gold when they don’t want to buy the dollar or expose themselves to the risk of interest rate moves by holding bonds.
The greenback is enduring a bruising 2025 – down more than 9% so far this year, amid concerns about Fed independence and those trade war concerns. That mechanistically lifts the value of gold in dollar terms.
Should I buy gold?
“Caveat emptor” certainly applies, given the edginess among investors that asset prices might generally have risen too high. But some experts do see more value in gold – earlier this month, Deutsche Bank raised its gold price forecast for 2026 by $300, to $4,000 per ounce.
You can buy physical gold, perhaps from the Royal Mint, which sells gold coins and bars. The bulk buying chain Costco even stocks gold bars, which often sell out, perhaps because of the precious metal’s popularity with doomsday preppers. But “such investments come with extra costs and complications, however, like insurance and storage,” says Jemma Slingo of Fidelity International.
Alternatively, you could put money into a gold exchange traded fund (ETF), which closely mirror movements in the gold price.
Another option is to buy shares in gold miners, such as Fresnillo, whose share price is up 250% so far this year.
There is a risk, though, of a pullback in gold after such strong gains, or a more sizeable drop, perhaps if inflation falls back towards central bank targets, or geopolitical crises ease.
