Nonetheless, investors have sought refuge in bullion amid US President Donald Trump’s expanding trade war, record US debt levels sparking concerns about the country’s fiscal health, and growing encroachment on the independence of the Federal Reserve. Investors have piled into gold-backed exchange-traded funds this year, with total holdings in September hitting their highest point in three years, according to data collected by Bloomberg.
The rush to gold has prompted the precious metal to keep setting new price records in 2025, extending a ferocious run from last year. Bullion crossed US$4,000 ($5,184) per troy ounce on Oct 8, not long after US lawmakers failed to reach a deal on federal funding, triggering the first government shutdown in almost seven years.
Why is gold considered a safe haven?
For modern investors, it’s primarily because of gold’s stability and liquidity rather than any intrinsic utility.
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Gold has a track record of increasing in value in times of market stress. It is also seen as a hedge against inflation, when the purchasing power of currencies is eroded. Inflation worries are front of mind for many right now as the duties Trump has imposed on imports into the US risk increasing prices across the global economy.
US inflation, in particular, has been in the spotlight as Trump piled pressure on the Fed to bend interest rates to his will. Bullion rallied in anticipation of the central bank cutting rates, as well as after the quarter percentage-point reduction was announced on Sept 17. Gold, which pays no interest, typically becomes more attractive in a lower-rate environment, as the opportunity cost of holding it versus interest-earning assets decreases.
The safe-haven status of gold has also been elevated as Trump’s trade agenda shakes trust in other typical shelters from market gyrations — namely the US dollar and government bonds — and threatens to end the idea of American exceptionalism.
See also: Goldman Sachs sees more upside for gold on private interest
Gold has historically been negatively correlated with the dollar. Because bullion is priced in dollars, when the greenback weakens, gold becomes cheaper for holders of other currencies. In mid-September, the dollar fell to its weakest level in more than three years against other major currencies.
Beyond market movements, owning gold is deeply rooted in Indian and Chinese cultures — two of the world’s largest markets for the metal — where jewellery, bars and other forms of bullion are passed down through generations as a symbol of prosperity and security. Indian households own about 25,000 metric tons of gold, more than five times what’s stored in the US depository at Fort Knox.
Physical buyers are famously sensitive to prices, but when gold’s appeal to investors in financial markets starts to fade, buyers of jewellery and bars often step in to grab a bargain, putting a floor under prices in the process.
What was driving the gold price up before Trump re-entered office?
The metal’s blistering price rally since the start of 2024 was partly driven by huge purchases by central banks, particularly in emerging markets, as they seek to reduce their dependency on the US dollar, the world’s primary reserve currency. Gold helps diversify a country’s foreign exchange reserves and guard against currency depreciation.
Central banks have been net buyers of gold for the past 15 years, but the speed of their purchases doubled in the wake of Russia’s invasion of Ukraine. As the US and its allies froze Russian central bank funds held in their countries, it underscored how foreign currency assets are vulnerable to sanctions.
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In 2024, central banks bought more than 1,000 tons of bullion for the third year in a row, according to the World Gold Council, and they hold around a fifth of all the gold that’s ever been mined. That pace of buying has since slowed somewhat in the face of higher prices.
The market value of US gold reserves surpassed US$1 trillion in late September — more than 90 times what’s stated on the government’s balance sheet. The country’s bullion stash is, by law, held at a constant value per ounce, set at US$42.22 in 1973, giving it a book value of around US$11 billion. In theory, this could be boosted if the government revalued its gold at current prices, which would inject cash into the Treasury’s coffers. However, speculation that the Trump administration might pursue this was dismissed by Treasury Secretary Scott Bessent earlier this year, and Bloomberg reported that the idea is not under serious consideration.
What could halt gold’s rally?
Following a nearly uninterrupted upward march in the gold price since early last year, there could eventually be some consolidation as investors bank their gains. A major de-escalation of Trump’s tariffs and a peace deal between Russia and Ukraine could also spur a price decline.
But central banks have been the most important pillar of support for gold’s bullish momentum, meaning they have the power to do the most damage if they trim their reserves.
There is no indication any large holder is considering this. The central banks of developed economies have sold very little gold in recent decades compared to the 1990s, when persistent sales sent bullion prices down by more than a quarter over the decade. Amid concerns that those uncoordinated sales were destabilising the market, the first Central Bank Gold Agreement was struck in 1999, under which signatories agreed to limit their collective sales of bullion.
Does gold, being a physical asset, cause any issues for investors?
Owning gold typically is not free. Because it is a physical object, holders have to pay for storage, security and insurance.
Investors buying gold bars and coins will usually pay a premium over the spot price. There can be geographic price differentials, too, and traders take advantage of these arbitrage opportunities.
That’s what happened earlier this year when fears that Trump could introduce tariffs on bullion imports pushed gold futures on New York’s Comex significantly above spot prices in London. There was a worldwide dash among those in possession of the physical metal to shift it to the US to capture the large premium and potentially hundreds of millions of dollars in profit.
That arbitrage trade came to an abrupt halt in April, when the Trump administration indicated that bullion would be exempt from duties. The market had a brief scare that this would not be the case, after US Customs and Border Protection said in August that certain gold bars are subject to Trump’s “reciprocal tariffs”. However, Trump himself then said that gold would not face import taxes.
Gold is usually relatively simple to shift, stashed away in the cargo holds of commercial aircraft, unbeknown to the holiday and business travellers in the cabin above. But it’s not as straightforward as loading up a jet from Heathrow Airport to JFK, thanks to a quirk in the global gold market: different size requirements. In London, 400-ounce bars are the standard, while for Comex contracts, traders must deliver 100-ounce or 1kg bars.
That means bullion being sent to Comex warehouses has to first go to refiners in Switzerland to be melted down and recast to the correct dimensions, before journeying on to the US. This creates a bottleneck when there’s a particular rush to rejig the location of bullion stocks. — Bloomberg Quicktake
