April 2025 Insights

Going for Gold

Gold has held a unique place in history and the global financial system for centuries. Beyond its aesthetic appeal, its scarcity and indestructibility have made it a dependable long-term store of value. The metal cannot be printed or artificially created, making it a natural hedge against inflation, currency devaluation, and economic instability. These enduring traits have recently thrust gold back into the spotlight. As trade tensions mount and geopolitical uncertainty intensifies, investors are seeking refuge in safe-haven assets. Gold has responded with a remarkable rally, touching the $3,500/oz mark.

Interestingly, the most recent surge has unfolded alongside a selloff in US Treasuries, representing a significant departure from the traditional positive relationship between bond prices and gold prices. Typically the relationship is driven by opportunity cost: when yields rise, interest-bearing assets like US Treasuries become more attractive relative to gold, which yields no income. Conversely, in an environment of low or negative interest rates, gold becomes a more appealing store of value. However, the current market dynamics, shaped in part by the resurgence of Donald Trump’s “America First” agenda and sweeping policy shifts, are prompting investors to reassess conventional safe-haven assets.

Growing concerns around the stability of the US dollar and Treasury bonds are pushing gold into sharper focus. As doubts about “US exceptionalism” intensify, gold is increasingly viewed as the ultimate safe haven. Unlike sovereign debt, gold carries no default risk, positioning it as a particularly compelling asset in times of heightened uncertainty.

Source: Freepik

Gold’s performance since the turn of the century underscores this narrative. In the aftermath of the 2008 financial crisis, it surged from $730 to $1,300 within two years. The European sovereign debt crisis pushed it even higher, peaking at $1,900 by mid-2011. More recently, the global pandemic triggered another powerful rally, reinforcing gold’s role as a reliable store of value during global stress.

Adding to this momentum is growing demand from central banks, which now collectively hold around one-fifth of all the gold ever mined. This structural shift reflects a desire to diversify away from the US dollar and reduce reliance on any single reserve currency. It also signals a broader rethinking of what constitutes a truly safe store of value in an increasingly multipolar and unpredictable world.

While gold plays an important role in a portfolio, particularly during periods of economic turmoil, it is worth noting that, over the long term, it has trailed the performance of equities. If you had invested a $100 in gold at the beginning of 1972 it would be worth roughly $7,500 today. By contrast, the same $100 invested in the S&P 500 would have grown to almost $24,000. This comparison highlights gold’s dual role: a powerful hedge in times of crisis, but one that often lags behind growth assets during stable, expansionary periods.