Gold, the precious metal traditionally regarded as a safe haven, tends to rise when geopolitical risks increase, when real interest rates fall or when inflation appears.

On the other hand, it tends to fall when real interest rates rise, because the opportunity cost of holding gold increases, or when the dollar rises (because gold is quoted in dollars).

However, a number of different factors seem to have pushed gold prices to new all-time highs, despite the rise in real bond yields in the United States and the strength of the dollar. This seems to indicate a structural change in the fundamental context of the gold market.

What other factors are driving gold prices higher?

- Strong demand from certain central banks

Central banks around the world continue to accumulate gold reserves. This upward trajectory is evident in recent data published by a number of countries, including China, Poland, the Czech Republic and the countries of Central Asia.

These buying trends reflect a broader global phenomenon observed over the last few years: where central banks are collectively buying more and more gold (1,045 tonnes of gold in 2024), exceeding the purchases of previous years (average annual purchases of 473 tonnes observed between 2010 and 2021*). In addition, China recently announced that its insurance companies could now invest up to 1% of their assets in gold.

This trend is set to continue over the coming years. High levels of global uncertainty and changing economic landscapes are driving central banks to seek out safe havens like gold, reinforcing its role as a stable store of value.

*Source: World Gold Council

- The trend towards de-dollarisation

As a corollary to the above, some countries are reducing their dependence on the US dollar as a reserve currency, a move seen as part of a wider strategy of de-dollarisation. This term refers to the gradual emancipation of the US dollar from international trade and finance, a trend that has significant implications for the role of gold in the global economy. Although there is currently no fiat currency capable of replacing the dollar in the role of reserve currency, gold is increasingly re-emerging with this function that once characterised it. The extra-territoriality of US law on USD transactions has clearly encouraged some countries to adopt this strategy.

Over the last three years, the central banks of several countries have also strengthened their gold reserves by reducing their dollar holdings, following the seizure by the US Federal Reserve (Fed) and the European Central Bank (ECB) of Russia’s currency reserves in 2022.

- Rarity value

The money printing that has resulted from the management of the various crises over the last 15 years (covid, the eurozone debt crisis, the subprime crisis, etc.) has weakened confidence in the major currencies. The expansive monetary policies pursued by the major central banks have increased the money supply in circulation, contributing to a currency devaluation that has silently eroded savers’ purchasing power. This phenomenon generally occurs when the value of money falls against other currencies or against real assets due to inflation, thereby reducing the real value of accumulated savings. The yellow metal differs from paper currencies in that there are a limited number of ounces of gold in the world, whereas dollar and euro notes can be printed in infinite quantities.

Seen in this light, it could be said that the rise in stock markets over recent decades largely reflects the depreciation of paper currencies. Moreover, calculated in gold, the S&P500 excluding dividends has changed little over the past 30 years (see chart below).

Another factor responsible for the scarcity of gold is the stagnation of global production of the metal, which has remained at around 3,000 tonnes a year since 2014 (see chart below), despite the large budgets devoted by mining companies to exploration and production. This limited production means that supply is restricted and, in a context of strong demand, is driving up prices.

- Excessive government debt

The large-scale fiscal stimulus packages designed to support the economy have led to a considerable increase in government debt, particularly in the United States and Europe. Given that US fiscal programmes (representing between 6% and 8% of gross domestic product) are likely to remain high in the years ahead, the debts of developed countries will continue to rise and their role as safe havens will continue to deteriorate. These developments should support the price of gold, which acts as a safe-haven asset.

- Geopolitical uncertainties (Ukraine, Middle East) and the trade war between the United States and China have also contributed to the rise in the price of gold.

In recent months, following Donald Trump’s accession to power, another more technical catalyst has been added. The United States’ threat to impose 25% tariffs on imports from Canada and Mexico has raised fears, as both countries are gold exporters to the United States. Such taxes would make the physical settlement of futures positions on the markets suddenly more expensive. As a result, the cost of borrowing gold soared, causing a short squeeze in the market.

Finally, and more generally, the US president’s policies (customs duties, the fight against illegal immigration, lowering taxes, higher debt levels, etc.) are perceived by the market as being permanently more inflationary, which has helped to push up the price of gold.

After such a surge, gold valuation measures are looking increasingly tense. In the United States, the gold/oil price, gold/wage and gold/real estate ratios are approaching all-time highs, signalling a possible overheating of the market. Looking ahead to 2025, a possible peace agreement in Ukraine could weigh on gold prices, as could a significant reduction in US government spending, orchestrated by Elon Musk. The audit commissioned by the US administration into the gold stocks at Fort Knox, the last of which dates back to 1974, will also be a crucial point of attention.

Although the drivers of the rise in the price of gold are currently clearly visible, the potential threats remain more hypothetical.

Against a backdrop of growing monetary disorder (inherited from the lax policies of recent years), persistent geopolitical tensions and alarming levels of debt, gold--as a real, tangible asset--stands as a bulwark against uncertainty and retains an essential place in a diversified portfolio.

Tanguy Kamp is head of investment management at Indosuez Wealth Management.

This article was originally published in .