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Has the gold express already left the station?
Commodities
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Gold has finally surpassed USD 3,000 per ounce, raising the obvious question: what’s next?
- Beyond reinforcing gold’s status as a long-term buy-and-hold asset, this surge reflects growing global instability.
- Multiple drivers lie behind the rally, some of which are long-lasting, while others may eventually fade.
- In the short term, traders will be looking for US stagflation signs and Trump tariff tantrums to support additional gains.
Gold continues to rally strongly, most recently breaking above USD 3,000 per ounce, thereby extending further a rally that began in November 2022. The rally has pushed the price of a standard 400-ounce (12.4 kg) gold bar—held by central banks globally—above USD 1,200,000, a stark contrast to the USD 115,000 a similar bar cost at the start of the 21st century. Beyond reinforcing gold’s status as a long-term buy-and-hold asset, this surge reflects growing global instability, which has fueled strong demand for safe havens like gold and, to some extent, also silver.
Since the November 2022 low, gold has rallied by 75%, and perhaps surprisingly to some, almost managing to keep up with the tech-heavy Nasdaq, which following the recent correction has delivered a similar return. A phenomenal performance by an asset often criticised by Warren Buffett, famously calling it an unproductive asset, with his argument being that gold does not generate income, unlike stocks, bonds, or real estate, which can produce dividends, interest, or rental income.
The reason why all types of investors—from private investors to asset managers and hedge funds, and importantly also central banks—have been non-stop buyers of gold for the past three years can best be explained by investors worrying about the world, both from a political, economic, and security perspective. Most recently, we have seen President Trump upend a world order that has persisted since the end of the Second World War, while his aggressive policies have started to hurt consumer confidence while stressing the stock market. These factors have heightened gold-supportive stagflation risks—slowing growth, rising unemployment, and increasing inflation—potentially forcing the Federal Reserve to ease financial conditions through additional rate cuts.
Gold tends to do well during US rate-cutting cycles, and while the US Federal Reserve for now has paused, the deteriorating outlook for the US economy has lifted expectations for further rate cuts later this year. Gold’s surge in the past three years has also been fueled by demand from central banks as they diversify their holdings away from the US dollar. Central banks, mainly in emerging markets, have bought more than 1,000 tons of gold annually for the past three years in a row.
Gold is seen as a hedge or protection against fiscal debt worries because of its historical role as a store of value and its tendency to hold or increase in price during times of economic uncertainty. In the past 25 years, government debt levels have exploded, not least in the US, raising some concerns it ultimately could lead to a crisis, in which case gold will act as a protection against the fallout.
Gold’s role as part of an investment strategy
“Never put all your eggs in one basket” is the best advice I have ever received, followed by an equally important advice to be diversified across different sectors and asset classes in order to reduce overall risk and improve stability. Unlike stocks and bonds, gold is a physical asset that cannot be destroyed and that does not rely on the financial stability of a government or a company.
Gold offers low correlation to stocks and bonds, often moving independently and sometimes even in the opposite direction. A downturn in the stock market is often associated with developments that overall tend to be gold positive. During periods of rising inflation, bond markets may suffer while gold over time has proven to offer protection.
How about silver?
Silver is often seen as a strong alternative to gold, and while it does not enjoy the support from central banks as gold has seen in recent years, its use as an industrial application gives it an additional source of demand. Unlike gold, which is primarily used for investment and jewellery, silver sees around 55% of its demand deriving from industrial applications, the most important being solar panels, electric vehicles, 5G technology, and medical applications. With the global push towards electrification, silver demand is expected to remain strong.In addition, silver supply is relatively inelastic as about 70% of silver production comes as a byproduct of mining of other metals, like copper, zinc, lead, and gold. Declining output in recent years from key producers in Mexico, Peru, and China has already created a relatively tight market with the Silver Institute forecasting a fifth consecutive year of significant supply deficits, driven by robust industrial demand, particularly for solar panels and electronics.
With this in mind, and combined with silver’s relative cheapness to gold, investment demand is growing. However, it is also worth noting that silver tends to behave like gold, but often on steroids, meaning it rallies harder but also slumps harder during periods of correction.
How to invest in gold?
Physical gold: Purchasing physical gold in the form of jewellery, coins, or bars provides direct exposure to the metal but involves considerations such as secure storage, insurance, and higher trading costs.
Gold ETFs/ETCs: Exchange-traded funds or commodities offer a convenient way to invest in gold without holding physical metal. These products track gold prices closely and can be traded easily on exchanges.
Gold mining stocks/ETFs: Investing in gold mining companies or ETFs that hold a basket of mining stocks provides exposure to gold prices. However, these investments carry operational risks and may exhibit higher volatility compared to gold itself, but generally during periods of rising gold prices, mining companies tend to do better as their profitability improve significantly.Conclusion: Is it too late to get involved ?
When an investment has increased significantly more than expected over a certain period of time, it is very natural and also sensible enough to consider whether the rally can continue. Of course, we never know what will happen in the markets in the coming months and years, and a lot can happen that sends the price of gold and silver downward—for example, if many investors want to cash in on their profits, thus creating selling pressure in the market. Such a wave could happen if we see a change in Trump's aggressive handling of America's major trading partners, or if a peaceful solution is found to many of the outstanding military conflicts in the world.But if we look out into the world today and note the enormous uncertainty that comes from various geopolitical conflicts, many heavily indebted countries including the United States, and also a completely new American foreign policy paradigm that we have to get used to, then there are certainly also arguments that it is not unrealistic to see prices continue higher, keeping in mind that nothing ever moves in a straight line indefinitely.
At Saxo, we recently raised our 2025 peak gold price to USD 3,300, while silver, with a relatively modest move lower in the gold-silver ratio to 75, may reach USD 44 per ounce during the same time frame.