What’s Driving the Gold Price?

Gold has long been viewed as a safe haven asset offering protection in times of financial uncertainty. Since antiquity, and where fiat currencies have been debased, gold has acted as a hedge. While for much of the past 40 years that has not necessarily been the case — in the 1990s and early 2000s, gold remained flat or declined even as consumer prices slowly rose — over the long term, it can be argued that gold has served as a hedge against inflation, however.

History and gold bugs aside, gold has regained its lustre in recent years. Since the COVID-19 pandemic, a combination of rising inflation, global instability, and shifting monetary policy has driven renewed interest in gold, pushing prices higher. So, why is gold going up now, and what are the key drivers?

A major factor is interest rates, particularly real interest rates, which are the return on cash or bonds after accounting for inflation. Since gold does not pay an income, it becomes more attractive when real interest rates are low or negative. Recently, expectations of interest rate cuts by major central banks, such as the U.S. Federal Reserve, have supported the gold price by lowering the opportunity cost of holding it.

The U.S. dollar also plays a crucial role. Gold is priced in dollars, so when the dollar weakens, gold becomes cheaper for buyers using other currencies, increasing demand. A strong or rising dollar, on the other hand, can put downward pressure on gold prices.

Geopolitical and economic uncertainty also drives demand for gold as a safe haven. In times of war, financial instability, or slowing global growth, investors often seek the perceived stability of physical assets, such as gold. Gold is not the only ‘safe-haven’; traditionally, US Treasuries, Japanese Government Bonds, Swiss Francs and even, in bygone days, Pound Sterling have served this purpose for investors, but latterly, it has been gold in the spotlight.

In 2025, the major driving force has perhaps been large-scale central bank purchases, particularly by emerging market nations. Many of these countries are diversifying their foreign currency reserves away from the U.S. dollar, which can carry risks due to political sanctions or dollar volatility. By holding more gold — which is not tied to any single country — these central banks aim to build a more neutral and secure reserve base. This trend has provided strong, consistent demand for gold from buyers with political as well as economic motivations for purchasing, and with a consequent limited sensitivity to price.

Finally and above all else, the supply of gold is limited. Gold production is expensive and slow. New discoveries are rare, and mining projects can take years to develop. So when demand for gold rises rapidly — whether from investors, ETFs, or governments — prices can surge simply because supply cannot respond.

How Might Someone Gain Exposure to Gold?

For those interested in understanding how exposure to gold is achieved, several common methods are available — each with its own characteristics, benefits, and risks. Physical gold is perhaps the most traditional route, typically in the form of bars, jewellery or coins. Some investors may choose gold-backed exchange-traded funds (ETFs), which track the price of gold and offer liquidity without the need to store the metal. Others might explore gold mining equities, whose share prices are influenced by both gold prices and company-specific factors.

Each of these routes carries its own considerations — including cost, accessibility, storage, market risk, and tax treatment. The right approach, if any, will depend entirely on an individual’s financial goals, risk tolerance, and broader investment strategy.

Of course, not all that glitters is gold, and as the price has risen, so can it fall. With a limited number of buyers behind the current surge, there is reason to be cautious. Where gold produces no income and has limited industrial use, the true and relative value is difficult to ascribe, and it could easily change direction.

If you would like more information about gold markets, how it may provide diversification within an appropriately diversified, risk-adjusted portfolio, and the risks of holding gold, please contact us.

This material is for general information purposes only and does not constitute personal advice or a recommendation to buy or sell any investment or financial product. Investments can go down as well as up, and you may not get back the full amount invested. Past performance is not a reliable indicator of future results. If you are unsure about the suitability of an investment, you should speak to a regulated financial adviser.