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Prosperous era for gold investments?

Gold's persistent high value is supported by numerous justifications, suggesting a potential sustained uptrend for the precious metal.

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Gold price rallies may persist due to multiple supporting factors, maintaining its elevated value.
Gold price rallies may persist due to multiple supporting factors, maintaining its elevated value.

Prosperous era for gold investments?

Gold Fever: Welcome to the contemporary era where the price of gold is soaring, and the potential for even higher heights is undeniable - we're living in the era of the "Gold Rush 2.0."

Since the turn of the year, gold has witnessed a monumental boost in value, surging by over 25% in US dollars. As we kissed October goodbye, mere days before the electrifying US election, gold hit a jaw-dropping high of $2,790 per ounce - a figure it hadn't seen since its previous peak during 2008's turbulent financial times. When you adjust this glitzy number for US inflation, the real gold price is merely 15% shy of its eye-popping 1980 record. Even more astounding is that, when accounting for inflation in British pounds, the current price of gold remains a mere 10% below its lofty position at the end of the 15th century, just before the Spanish conquest of the New World flooded European markets with gold and silver.

But will the goldmine continue to grow deeper after this breathtaking surge? At first glance, the future of this precious metal seems firmly tethered to the strings of interest rates. After all, gold is essentially an asset that doesn't generate income like interest payments. However, the US Federal Reserve's interest rate cuts this year and projected easing to approximately 4% by 2025 are factors that have aided gold's price increase in no small measure. Yet, if market forecasts skew towards fewer interest rate cuts in the future, perhaps because of the economic policies being proposed by the next US president, such as tariffs, tax cuts, and stricter immigration policies that could potentially lead to higher inflation rates, we may witness pressure on gold prices in the short term.

Gather 'Round, Gold Buggies:

Despite the presence of potential pitfalls, there are compelling reasons to believe that the price of gold will remain robust in the long run. One key factor is the noticeable weakening of the relationship between real interest rates and the gold price in recent years. Despite an increase in real interest rates (calculated as the 10-year US Treasury yield adjusted for the average inflation rate over the last decade), the gold price has grown significantly between 2021 and early 2024.

Additionally, there are three vital elements that argue for a sustained, healthy gold price in the medium term:

  1. Inflation: We can expect to experience structurally higher inflation rates than in the two decades prior to the COVID-19 crisis. The deglobalization observed since the financial crisis, demographic shifts in almost every industrial nation plus China, and decarbonization efforts all represent supply shocks that have a medium-term inflationary impact.
  2. Monetary Overhang: The massive monetary stimulus measures implemented to combat the COVID-19 pandemic have generated a significant monetary overhang.
  3. Public Debt Ratios: High public debt ratios suggest a higher risk that inflation could be utilized as a tactic for debt relief in the future. Analyses by AllianzGI indicate a medium-term US inflation rate of 2% to 3%, which is above the Federal Reserve's target of 2%. A similar scenario unfolds in the Eurozone.

Now, let's touch on the potential obstacles:

  1. Geopolitical Risks: Since the beginning of the Ukraine war in 2022, geopolitical risks have escalated, as demonstrated by the index calculated by Dario Caldara and Matteo Iacoviello. In the past, gold has typically reacted positively to geopolitical events.
  2. Emerging Economy Demand: Demand for gold has increased substantially since 2022 from emerging economies such as China, Turkey, and Middle Eastern countries, who are increasingly moving their reserves into gold for security purposes.

Stefan Hofrichter, Head of Global Economics & Strategy at Allianz Global Investors, remains steadfast in his belief that the "Golden Age for Gold" might not be drying up just yet. Let the gold rush commence!

Sources:

[1] Goldman Sachs Forecasts $2,900/oz Gold Price as Central Bank Demand Fueles Investment Surge (CNBC, 2025)[2] Citi Predicts Gold Could Reach $3,000 Within Six Months Amid Global Tensions (Reuters, 2025)[3] Bank of America Predicts $3,000 Gold Price by Q4 2025 (Bloomberg, 2025)[4] JP Morgan Suggests Gold Could Surpass $4,000/oz by Mid-2026 (Business Insider, 2025)[5] CoinCodex Predicts Gold Could Peak at $4,147.95 by December 2025 (CoinCodex, 2025)

  1. Despite concerns about potential interest rate increases and geopolitical risks, the outlook for gold prices remains positive, with several analysts predicting gold prices ranging from $2,900 to $4,147 per ounce by the end of 2025.
  2. Inflation, a key factor driving gold prices, is expected to remain structurally higher due to deglobalization, demographic shifts, and decarbonization efforts, leading to potential medium-term inflationary pressures.
  3. Monetary overhang and high public debt ratios also contribute to the sustained healthy gold price in the medium term, as they increase the risk of inflation being used for debt relief.
  4. Emerging economies, such as China, Turkey, and Middle Eastern countries, have been increasingly moving their reserves into gold for security purposes, which is boosting gold demand in these regions.

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