The year 2024 saw gold surge nearly 27%, marking its strongest annual performance since 2010. Analysts point to a confluence of factors driving the rally: declining global interest rates made non-yielding assets like gold more attractive relative to bonds, while escalating conflicts in Ukraine and the Middle East prompted a rush to safety.
Central banks also played a pivotal role, purchasing more than 1,000 tonnes of gold for the third consecutive year. Emerging markets led the charge, seeking to diversify their reserves away from the US dollar amid shifting power dynamics.
But enthusiasm extended well beyond sovereign buyers. Gold-focused ETFs recorded roughly $3.4bn in net inflows, and assets under management reached record highs. Retail investors in Asia--especially in China, where the housing downturn eroded confidence in real estate--helped fuel demand. Meanwhile, political unrest in Europe and the US elections stoked further interest in gold-backed investments.
Momentum carries into 2025
Despite an exceedingly strong year in 2024, gold’s upward momentum has persisted into the first quarter of 2025, with prices hitting multiple all-time highs. Market watchers attribute this to heightened trade uncertainty and renewed fears of inflation. The US administration’s hardline tariff policies have stirred investor anxiety, threatening knock-on effects for corporate earnings and global growth.
Inflation fears, in particular, have bolstered gold’s appeal. As tariffs raise import prices, gold's reputation as an inflation hedge has come roaring back. According to the Michigan survey, year-ahead inflation expectations among US households are now at the highest level since 1981.
Meanwhile, central banks--notably China’s--continue buying aggressively. In a major policy shift, China has also allowed select insurance firms to invest in gold, further expanding the investor base.
Retail demand is rising in tandem. A turbulent start to April, triggered by dollar weakness and erratic Treasury market behavior, prompted individual investors to increase their gold holdings. Yet, experts warn the rally may not be sustainable indefinitely. A moderation in trade tensions or profit-taking events--such as those witnessed on April 4 and 7--could temper future gains.
Moreover, liquidity needs during crises--as seen during price corrections on April 4 and 7 following “Liberation Day”--could also create headwinds.
Other safe havens lose some sparkle
While gold gleams, other traditional safe-haven assets have shown signs of tarnish. US Treasuries, long seen as a default destination in times of crisis, have lost favour amid surging yields and concerns over America's fiscal trajectory. Investors are increasingly wary of ballooning debt, economic friction from tariffs and mixed signals from Washington.
The US dollar has shown similar cracks. Volatility has increased as more countries explore alternative settlement systems that bypass the greenback. Tensions between president Donald Trump and the Federal Reserve--including controversial remarks about dismissing the Fed chair--spooked currency markets, pushing the dollar to its weakest level against the euro in three years. Gold, priced in dollars, typically benefits from a weaker greenback, becoming cheaper for investors holding other currencies.
Bitcoin and other cryptocurrencies, once positioned as “digital gold,” have not proven resilient in recent sell-offs. Market turmoil has battered certain digital assets, reinforcing the perception that they remain too volatile to be true safe havens.
A strategic role for the long term
With the emergence of crypto, some labeled gold as a relic of monetary systems past. However, the recent market downturn has only proven that gold has evolved into a strategic asset--a hedge against systemic crises and a vital tool for portfolio stabilisation.
Worth noting is that gold functions best as a strategic asset in a diversified portfolio rather than a tactical one. Investors who attempt to time entries and exits from gold positions might underperform those who maintain consistent allocations. This is because gold’s protective properties often manifest suddenly during crisis periods. Having a small allocation to gold has historically improved risk-adjusted returns, offering diversification without significantly compromising growth. While gold doesn’t offer dividends or yield, it can offer diversification and the intangible benefit of peace of mind.
As the global economy teeters on the edge of profound transformation, gold’s relevance is anything but outdated. It remains one of the few assets that consistently earns its place in portfolios through its tangible resilience. Whether amid inflation, conflict, or political upheaval, in times of trouble, gold’s lustre--ancient and enduring--continues to shine.