Quick Bite – Gold Retains Its Shine

Six weeks ago, when markets collapsed in the second week of April, gold enjoyed its best week in 5 years, surging to record highs. Investors rushed to the safety of one of the few havens left in global markets in the wake of Donald Trump’s tariff blitz. The rise came as the market panic unleashed by the President’s trade war caused investors to pull back from US Treasuries, and as equities nosedived and the US dollar fell to 3-year lows against the euro. Since then, it’s been a bit of a rollercoaster.

The question now is whether gold still retains its shine, or has it made its dash? In this QB, we look at some of the fundamental factors that lead us to think that the best may be yet to come. Of course, as always, you should not take this note as personal investment advice, rather it is general information.

Gold Ten Year Chart

Source: Trading Economics

Since March, investors have been increasing their holdings of gold, driven by concerns about the health of the economy and market volatility. Longer term, we expect prices to be boosted by increased demand from central banks. We expect these 2 factors to push gold even further to new record highs.

A snapshot of how hedge funds and other traders are positioned shows that gold trading spikes during periods of geopolitical turmoil. The wars in Ukraine and the Middle East contribute to demand. And gold has risen in 2025 amid uncertainty over the Trump administration’s tariffs on major trading partners.

Source: Goldman Sachs

The Russian invasion of Ukraine was a major turning point for gold. G7 countries responded to the invasion of Ukraine by freezing more than $280 billion of Russian assets. Those holdings were primarily euro securities, but also US dollar and other denominations. Most of those foreign assets were held in Brussels.

The freezing of Russian assets showed that foreign reserves could potentially be confiscated. As a result, governments have been buying much more gold.

Source: Goldman Sachs

“Whenever there’s a lot of uncertainty, traders temporarily park their money in gold. When there’s clarity, gold prices tend to drop again because traders know what to do with their money.” Lina Thomas, Goldman Sachs Research.

Central banks hold more than $12 trillion in foreign exchange reserves. They keep these assets for several reasons, such as diversification, to protect against inflation, and to defend their own currency if it comes under stress (by selling foreign reserves to buy the domestic currency).

Since the freezing of Russian assets, central banks have been buying much more gold. They can keep the metal in their own vaults on their own territory, out of reach of other institutions and governments around the world.

Since 2022, central bank purchases of gold on the London over-the-counter market have increased 500%, according to Goldman Sachs Research.

Source: Goldman Sachs

Emerging market central banks, which have a smaller percentage of their reserves in gold, are also playing catch up with their peers in developed markets, according to Goldman Sachs Research. China holds less than 10% of its reserves in gold, compared to about 70% or more for the US, Germany, France, and Italy.

Other factors matter too. Interest rates have typically been one of the most important dynamics in gold prices. Because gold doesn’t offer a yield like bonds, it is more attractive to investors when interest rates are lower (and vice versa when bond yields are higher). For this reason, gold prices have historically been correlated with interest rates, but more recently, central bank buying has caused the two to diverge.

Source: Goldman Sachs

Gold is likely to benefit as ETF investors increase their holdings in anticipation of interest rate cuts and amid growing recession concerns. In the event of a recession, Goldman Sachs Research forecasts that gold could rise significantly higher.

Investors might also turn to gold to diversify away from US assets, particularly if traditional equity portfolio hedges such as US Treasuries continue to underperform. Even a small rotation out of US assets into gold would have a big positive impact on the gold price given the relative sizes of the markets. For example, global gold ETF holdings are worth only about 1% of outstanding US Treasuries and 0.5% of the S&P500 market cap.

Note: this QB is not meant to be a recommendation. “All forecasts are wrong, but some may be useful”. Hopefully some of these insights assist you in your own deliberations – or better still, with the advice of a specialist investment adviser.