The price of gold exceeded US$2,900 an ounce last week for the first time. Today, the yellow commodity is priced three times higher than it was a decade ago, and has grown ten-fold since 2000.
Adding to the hype surrounding the commodity, Goldman Sachs this week lifted its gold price forecast to US$3,100 per troy ounce (toz) by year's-end, up significantly from US$2,890.
In a new market note, the investment bank said that the change was driven by structurally higher central bank demand which, it noted, would add 9 per cent to its price, as well as a gradual boost to ETF holdings.
“If policy uncertainty - including tariff fears - stays high, higher speculative positioning for longer could push gold prices as high as US$3,300/toz by year-end,” Goldman commodities specialists, Lina Thomas and Daan Struyven, said.
In a separate note from Fidelity International, their investment director Tom Stevenson suggested gold’s current performance isn’t historically typical, and could reflect that “all is not well with the world”.
“Gold should not really be this high,” Stevenson said.
“Traditionally, the precious metal performs badly when interest rates rise. That is because, unlike bonds, shares, cash, or property, it does not pay investors an income,” he explained.
“When the yields on those other assets are attractive, there is less incentive to hold ‘the barbarous relic’ as the economist John Maynard Keynes called gold. That is the case today, but still gold is hitting new records.”
Moreover, he explained that gold usually prefers a weaker dollar, meaning today's Trump-fulled strong USD should act as a headwind for the yellow metal.
“Clearly, it is not,” he said.
“So, the performance of gold is telling us something else. The message it sends is that all is not well with the world. It says that investors are worried, and history shows that it is unwise to ignore the signals that gold sends at times of stress.”
For instance, ahead of the Global Financial Crisis, the S&P 500 rose strongly, nearly doubling in value in less than four years. Alas, it still underperformed the price of gold by around 40 per cent.
“Gold investors did not trust what the stock market was telling them. And they were right,” Stevenson said of the period between 2003 and the end of 2007.
Today, gold has several driving forces supporting its strength, chiefly its safe-haven appeal.
“The election of Donald Trump has massively increased the unpredictability of US policy, on many fronts but notably on trade and tariffs. At the same time, gold is a hedge against inflation. Many Trump policies, not just tariffs, are likely to be inflationary. It is a perfect storm for gold,” Stevenson said.
Noting that uncertainty goes “right to the top”, the investment director said that central banks are increasing gold reserves to hedge against geopolitical risks and reduce reliance on the US dollar. Namely, in 2024, central bank purchases exceeded 1,000 tonnes for the third year in a row.
Adding fuel to the fire was DeepSeek’s allegation last month that it could outperform OpenAI’s ChatGPT at a much lower cost.
“At a stroke, this cast doubt on Silicon Valley’s assumed dominance in artificial intelligence. And with it, the fragile valuation of that crucial driver of the US stock market’s outperformance,” the investment director said.
But with gold moving so far and at such an accelerated pace, Stevenson believes investors are right to question whether the gold ship has already sailed.
“Historically, the gold price moves in steps, rising rapidly and then consolidating or falling, often for many years. Might there be a better way to hedge against the uncertain outlook?
One commodity, he said, that is receiving some attention now is gold’s less fashionable counterpart, silver.
While the two precious metals are similar on paper, they differ in the fact that more than half of annual demand for silver stems from industrial uses. But, as with gold, macro drivers such as inflation and interest rates, geo-political stress, and policy shifts are an influence on the silver price.
“There is around fifteen times as much silver under the ground as gold. And for many years, that simple equation governed the ratio of the two prices,” Stevenson added.
“More recently, however, the relationship between the two has changed dramatically. Today, the gold price is one hundred times that of silver. The preference for gold as a risk management tool justifies this in part, but it does not recognise the growing deficit between supply of and demand for silver.
“The price differential has widened significantly in the past decade. The traditional correlation between the two metals has broken down and gold looks overvalued compared to silver, which remains well below its recent peak.”
