Gold's record run creates new rules for investors

Investors are testing well-established views on gold, which is hitting new records, as an artificial intelligence-fueled rally in stocks and red-hot bitcoin forces a rethink of what is driving one of the world's oldest asset classes.

Gold surpassed $4,000 an ounce for the first time this week and with a 53% gain in 2025, it is heading for its best year since 1979, outpacing bitcoin's 30% rise and the S&P 500 plus its stable of tech titans' 15% rise. Typically, the metal thrives when investors worry about inflation, an economic slowdown or potential market turmoil. Conversely, when investors' risk appetite improves, they tend to fall behind brighter alternatives that don't require extra cash to store or insure.

That dynamic was at play in 1980, when gold soared as U.S. inflation surpassed 13% and tanked the economy and stocks, and in early 2008, when the global financial crisis wiped out 32% of Wall Street stocks in six months.

But gold is now soaring along with stocks and bitcoin, as investors bet heavily on U.S. rate cuts and concerns grow about the dollar's role as the world's main reserve currency.

“When there is a paradigm shift in how the current economic system works, we have found in history that people always go for gold,” said Arun Sai, senior multi-asset strategist at Pictet. “Think of it as the ultimate protection against degradation.”

Political drama abounds, France's budget woes and concerns about central bank independence are unnerving investors, while the war in Ukraine continues and the first signs of a peace deal in Gaza are emerging. The rise of artificial intelligence is boosting Wall Street, raising fears of a bubble, while President Donald Trump's big spending plans, along with his tariffs and attacks on the Federal Reserve, have undermined Treasuries and the dollar, which has fallen 10% against other major currencies this year.

JPMorgan Chase CEO Jamie Dimon believes there is an increased risk of a significant correction in U.S. stocks within the next six months to two years. The tariffs have further stoked inflation fears, another bullish factor for gold.

“It looks like we're at an inflection point for inflation,” said Michael Metcalfe, head of macro strategy at State Street. Anxiety over the Federal Reserve's independence and inflation could be two sides of the same story for gold, given the notion that the world's most influential central bank may remain unmoved as tariff-fueled inflation intensifies.

Inflation across the group of richest G7 nations averaged 2.4% in September, versus 1.7% 12 months ago, and most of their central banks are cutting rates or staying put. Meanwhile, Trump has insulted Federal Reserve Chairman Jerome Powell, is attempting to fire a Federal Reserve official, and nominated his ally Stephen Miran for governor. Since August, gold is up about 20%.

The US labor market is slowing, but other economic indicators are resilient, while inflation expectations are rising. Traders anticipate U.S. rate cuts through 2026, which will help stocks and gold.

Rhona O'Connell, head of market analysis for EMEA and Asia at StoneX, says the “efficient frontier” partly explains why gold is rising in tandem with stocks.

The sweet spot is where a portfolio manager generates the greatest return for the amount of risk he or she will tolerate. Gold often moves inversely to stocks, making it a good risk mitigator, he said.
When gold rises, managers can add something to their holdings to offset the risk of stocks falling, while earning an additional return.

“When stocks take a massive crash like this, some of that extra value in the stock markets will shift into additional gold holdings,” O'Connell said.

Gerry Fowler, head of equity strategy at UBS, noted that rising retail demand is influencing the price of gold. “Every time someone puts more money into the gold ETF, the ETF has to go buy physical gold,” he said, adding that this is not the only part of the market where what he called “bubbly behavior” and “retail enthusiasm” is manifesting.

Growing concern about a potential AI-driven stock crash, with the Bank of England and IMF expressing concern, means gold is serving as a hedge for that too. “People are as bullish on AI as they are on gold,” said Trevor Greetham, head of multi-asset at Royal London Asset Management. “If there were a deep recession and AI crash, gold could go up another leg.”

Gold's rise is mainly due to declining confidence in the dollar. Central banks have been avid buyers and now hold about a quarter of their reserves in bullion, a way of moving away from the dollar.

Nutshell Asset Management CIO Mark Ellis said he expected the trend to continue, as US tariffs prompt exporters to seek new markets, thereby reducing their dependence on the dollar.
Your main take on the latest gold boom? “It's Donald Trump,” he said.