Gold's Record-Breaking Rally: Is This the Start of a New Gold Era?
Gold prices have soared past $2,870 per ounce, breaking records and fueling speculation about whether this marks the beginning of a new era for the precious metal. A combination of central bank purchases, inflation concerns, and deglobalization fears has propelled gold's remarkable rise, with investors seeking refuge in this traditional safe-haven asset. Adding to the momentum, trade tariffs imposed by the Trump administration are further amplifying demand.
A Historic Surge in Gold Prices
Gold's meteoric ascent has caught markets by surprise, surging nearly 10% since the beginning of the year. This is the fastest pace of growth observed since 1980 during the same period, raising questions about the sustainability of this rally.On Wednesday morning trading in Europe, gold climbed above $2,870 (€2,780) per ounce, driven largely by increased demand from central banks and investors wary of economic instability.
While gold has historically thrived on a weaker US dollar, declining Treasury yields, or expectations of Federal Reserve interest rate cuts, the current rally appears to be fueled by more profound structural forces.
The Perfect Storm: Debt, Inflation, and Deglobalization
Otavio Costa, macro strategist at Crescat Capital, describes the current economic climate as a "real-time history lesson on the significance of gold." According to Costa, the rally is driven by a confluence of macroeconomic factors reminiscent of past financial crises.
Government debt levels have reached historic highs, echoing the debt concerns of the 1940s.
Inflationary pressures are mounting in a manner similar to the challenges faced in the 1970s.
Sky-high equity market valuations mirror the speculative excesses of the 1920s and 1990s.
With the US fiscal deficit widening and major economies embracing protectionist policies and manufacturing revitalization, gold has increasingly become a hedge against financial instability.
Central Banks Lead the Gold Rush
A key driver of gold's bullish momentum is the aggressive accumulation by central banks. According to the latest World Gold Council report, central banks acquired over 1,000 tonnes of gold in 2024 alone, marking the third consecutive year of such high purchases. Notably, buying accelerated in the fourth quarter, reaching 333 tonnes.
Callum Thomas, head of research at Topdown Charts, notes that "global reserve allocations to gold have doubled over the past decade," highlighting ongoing concerns about US fiscal sustainability and geopolitical risks. Additionally, Goldman Sachs estimates that since Russia's central bank assets were frozen in 2022, global central bank demand in the London over-the-counter market has surged fivefold, signalling growing concerns over financial restrictions.
Goldman Sachs remains bullish, identifying gold as its "highest conviction trade" across commodities.
Tariffs and Trade Tensions Boost Demand
Trade tensions are further stoking demand for gold. The Trump administration recently imposed a 10% tariff on Chinese imports, effective February 4, prompting retaliatory measures from China, including tariffs on US goods and restrictions on critical mineral exports.
Goldman Sachs economist Jan Hatzius anticipates further escalations, including 20 percentage points on Chinese imports and new tariffs on EU car exports. Such uncertainties make gold an increasingly attractive hedge for investors.
London's Gold Supply Under Pressure
Reports suggest the London gold market is experiencing disruptions as traders rush to secure bullion. Reuters recently reported delays of up to four weeks for withdrawals from the Bank of England, significantly longer than the usual timeframe of a few days.
This rush is attributed to traders hedging risks on the COMEX exchange and capitalizing on price differentials between US futures and London spot prices. However, Ross Norman, CEO of Metals Daily, downplayed concerns, attributing the delays to logistical reshuffling rather than an actual shortage.
London remains a key gold hub, holding approximately 8,710 tonnes, according to the London Bullion Market Association. Although 435 tonnes have been moved to New York, this is a small fraction of the overall supply.
Silver: The Undervalued Alternative?
While gold dominates headlines, silver presents a compelling investment opportunity. Unlike gold, silver has significant industrial applications, making it a hybrid between a precious metal and an industrial commodity.
Callum Thomas suggests that silver is undervalued relative to gold and could benefit from an anticipated rebound in global industrial production. As growth-sensitive commodities gain traction, silver may experience strong tailwinds in the coming months.
Is There More Room for Gold to Climb?
Despite gold's impressive rally, signs suggest it may still have room to rise. Unlike previous bull markets, exchange-traded fund (ETF) flows remain subdued, retail investor allocations are low, and media coverage has yet to reach euphoric levels—indicating that sentiment is not yet overheated.
According to Thomas, these factors suggest that gold's bull run may still have further upside. With both structural and cyclical forces supporting its ascent, the precious metal appears well-positioned for continued gains.
Whether this marks the start of a sustained new gold rush or another cyclical upswing remains to be seen, but for now, central banks and investors are betting big on bullion.
Disclaimer: This information is for general knowledge and informational purposes only and does not constitute financial,investment, or other professional advice.