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Gold shot up to a record high of more than $2,900 per ounce this week on the heels of a 27 percent gain in 2024. Gold is up 40 percent since Jan. 2, 2024, and 10 percent year to date.
So what’s driving the surge in gold prices? Three words: tariffs, safety and de-dollarization.
1. Trump’s tariffs are rattling markets
Unlike, say, an unheard of startup casually releasing an open-source AI model on a Monday, tariffs have been on everyone’s radar. Still, when President Donald Trump unveiled an additional 25 percent tariff on steel and aluminum imports this week — and plans to impose reciprocal tariffs on countries that tax U.S. imports — fears about near-term trade wars grew.
While DeepSeek’s surprise debut caused tech stocks to crater, tariffs impact entire markets. The potential fallout put an immediate damper on investor expectations about future stock market growth and the U.S. economy as a whole, driving some investors straight to gold as a safe-haven asset.
2. Investors are looking for a safe place to land
Gold has historically been a salve for jittery investors, providing a counterpoint to traditional securities, such as stocks that offer higher returns but more volatility.
“Gold prices often benefit from geopolitical tensions and the perceptions of heightened economic and financial market risk, with investors using it as a hedge against a low-probability, high impact worst-case scenario,” says Greg McBride, CFA, Bankrate chief financial analyst.
What makes gold a good hedge? Unlike government-issued currency that can be devalued, gold is a commodity with an inherently limited supply. Plus, because demand for gold spans the globe, its value is less susceptible to adverse events in any single region.
There are a couple ways for individuals to invest in gold.
- You can buy gold bullion directly.
- You can use a gold IRA to hold the physical asset in your portfolio while still getting a tax break.
- You can invest indirectly via a gold exchange-traded fund that invests in gold as an underlying asset.
Even though gold is an age-old portfolio play, owning precious metals is different than owning company stock.
“With no dividends or other cash flows, investors are dependent solely on price appreciation for a rate of return on gold as an investment,” McBride says.
3. Central banks are diversifying reserves
It’s not just individual investors behind the gold rally.
Like your great uncle Lenny loading up on gold ingots from Costco, central banks around the world have been on a gold buying spree, shoveling more than 1,000 metric tons per year into their reserves every year since 2022, according to the World Gold Council.
Central banks buy gold to hedge against currency volatility and inflation in their own countries. It’s also a strategy to diversify their reserves and minimize reliance on the U.S. dollar — aka “de-dollarize” — or, in the case of countries like Russia and China, reduce the impact of U.S. sanctions.
How high will gold go in 2025?
Most global banks expect demand for gold to remain strong this year, with some forecasts predicting gold will hit $3,000 per ounce later this year.
Proceed with caution, though, when making investment decisions based on predictions. As McBride points out, divining the future path of gold prices is difficult because there are so many variables that can come into play.
“While higher inflation is seen as giving gold prices a boost, the higher interest rates that result from elevated inflation tend to be a headwind to gold prices,” McBride says.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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