Gold futures traded in New York have surged nearly 71% this year, positioning themselves for the most significant annual increase in 46 years. The previous instance of gold experiencing such a robust annual performance coincided with Jimmy Carter’s presidency, a crisis in the Middle East, rampant inflation, and the United States grappling with an energy crisis. Currently, tariffs are creating distortions in international trade, while conflict persists with Russia’s ongoing war in Ukraine. Additionally, tensions have escalated between Israel and Iran, and the United States is actively seizing oil tankers near the coast of Venezuela. During periods of uncertainty, investors gravitate towards safe-haven assets such as gold. Gold is viewed as a robust investment, as investors anticipate that the yellow metal will maintain its value during crises, in the event of rising inflation, or when currencies depreciate. “Uncertainty remains a defining feature of the global economy,” stated Joe Cavatoni. “In this environment, gold has emerged as a strategic diversifier and a source of stability.”
For certain investors, a notable drawback of gold is its lack of income generation, in contrast to bonds. However, when the Federal Reserve reduces interest rates, as observed in recent months, bond yields typically decline, thereby enhancing the attractiveness of gold. Gold futures were priced at approximately $2,640 per troy ounce at the beginning of this year. The yellow metal ascended past a historic peak of $4,500 per troy ounce on Monday. JPMorgan Chase analysts project that prices will exceed $5,000 per troy ounce by 2026. Gold’s ascent of 71% this year significantly surpasses the S&P 500’s modest increase of only 18%. In 2024, gold futures experienced a 27% increase, whereas the S&P recorded a 24% rise. The anticipation of potential Federal Reserve rate reductions in 2026 is bolstering the ascent of gold prices. A depreciating US dollar is contributing to the increase in price, as it renders gold purchases comparatively more economical for global investors.
Gold jewelers and individuals possessing gold jewelry are reaping the rewards of elevated prices. The current surge in gold demand is not solely attributed to American consumers purchasing gold bars from Costco; rather, it is characterized by nations acquiring gold in substantial quantities. The increase in gold prices has been supported by a notable uptick in purchases by central banks, particularly driven by China’s actions. According to Ulf Lindahl, a primary motivation behind the increase in gold holdings by China’s central bank is to reduce dependence on American assets, such as US Treasury bonds and the dollar. The shift became evident following Russia’s invasion of Ukraine in 2022. Western governments have taken steps to freeze Russian assets that are denominated in US dollars, leading both Russian and Chinese authorities to seek methods to reduce their vulnerability to American policy decisions, according to Lindahl. “The current wave of central-bank buying is different precisely because it is rooted in geopolitics,” stated Ole Hansen. “The freezing of sovereign reserves and the broader fragmentation of the global financial system have introduced a structural element to gold demand that is likely to persist for years.”
According to the World Gold Council, central banks worldwide have amassed more than 1,000 tons of gold annually for the past three years, a significant increase from the average of 400 to 500 tons per year seen in the preceding decade. The rise in gold prices has been accompanied by increases in other precious metals, including silver, platinum, and palladium. Silver futures have experienced a remarkable increase of 146% this year, while platinum futures have risen nearly 150% and palladium futures have advanced by 100%. According to Hakan Kaya, precious metals function as “a hedge against an increasingly uncertain world” for investors. The continuation of that trend is plausible. Lindahl anticipates that gold will continue its upward trajectory in 2026. The augmentation of gold reserves by central banks may result in a diminished supply of bullion available in the market. The interplay of heightened demand from typical investors and a constrained supply may result in elevated price levels. Additionally, contributing to the increased demand for precious metals are apprehensions regarding substantial government deficits and debt obligations, as noted by Matt Maley. “As investors have become more aware of these issues, they have been turning to gold as a safe haven,” Maley stated.