Its soaring run comes as investors bet heavily on US rate cuts and concern grows about the greenback’s role as the world’s top reserve currency
[LONDON] Investors are testing well-established views about gold, which is surging to new records, as an artificial-intelligence-driven stocks rally and red-hot Bitcoin force a rethink of what is driving one of the world’s oldest asset classes.
Gold topped US$4,000 an ounce for the first time this week, and with a 53 per cent gain in 2025, is heading for its best year since 1979, trouncing Bitcoin’s 30 per cent rise and the 15 per cent increase in the S&P 500 plus its array of tech titans.
Typically, the metal thrives when investors fret over inflation, economic slowdown or potential market turmoil. Conversely, when investors’ risk appetite improves, it tends to lag shinier alternatives that do not require extra cash to store or insure them.
That dynamic was at play in 1980, when gold surged as US inflation peaked above 13 per cent and tanked the economy and stocks, and in early 2008, when the global financial crisis wiped 32 per cent off Wall Street shares in six months.
But gold is now soaring together with stocks and Bitcoin, as investors bet heavily on US rate cuts and concern grows about the US dollar’s role as the world’s top reserve currency.
“When you have a paradigm shift in how the current economic system is working, we’ve found in history that people always move to gold,” said Pictet senior multi-asset strategist Arun Sai. “Think of it as the ultimate debasement hedge.”
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Political drama is rife, France’s budget problems and concerns about the independence of central banks are unnerving investors, while war in Ukraine continues and the first signs of a Gaza peace deal are emerging.
The artificial intelligence (AI) boom is driving Wall Street, raising concerns of a bubble, while President Donald Trump’s big spending plans, along with his tariffs and attacks on the Fed have undermined Treasuries and the US dollar, which is down 10 per cent against other major currencies this year.
JPMorgan Chase CEO Jamie Dimon reckons there is a heightened risk of a significant US stocks correction within the next six months to two years.
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US tariffs have further stoked fears of inflation, another bullish factor for gold.
“It feels like we are at an inflection point for inflation,” said Michael Metcalfe, head of macro strategy at State Street.
Anxiety about Fed independence and inflation could be two sides of the same story for gold, because of the notion that the world’s most influential central bank may stand by as tariff-driven inflation intensifies.
Inflation across the G7 group of richest nations averaged 2.4 per cent in September, versus 1.7 per cent 12 months ago, and most of their central banks are either cutting rates or standing pat.
Meanwhile, Trump has volleyed insults at Fed chair Jerome Powell, is attempting to sack one Fed official, and has nominated ally Stephen Miran as a governor. Since August, gold has jumped by about 20 per cent.
Spillover from stocks to gold
The US labour market is slowing, but other economic indicators are resilient, while inflation expectations are rising. Traders anticipate US rate cuts into 2026, helping equities and gold.
Rhona O’Connell, head of market analysis, Europe, the Middle East and Africa, and Asia, at StoneX, says the “efficient frontier” partly explains why gold is up in tandem with stocks.
The sweet spot is where a portfolio manager generates the most return for the amount of risk they will tolerate. Gold often moves inversely to stocks, making it a good risk mitigator, she said.
When gold rises, managers can add some to their holdings to offset the risk of stocks falling, while bagging extra return.
“When you’ve got equities on a massive great tear like this, some of that additional value in the equity markets will spillover into additional gold holdings,” O’Connell said.
Gerry Fowler, head of equity strategy at UBS, flagged increased retail demand as reading across to the gold price.
“Every time somebody puts more money into the gold exchange-traded fund (ETF), the ETF has to then go buy physical gold,” he said, adding that this is not the only part of the market where what he dubbed “bubbly behaviour” and “retail enthusiasm” is showing up.
An AI hedge
Growing worry over a possible AI-driven stocks crash, with the Bank of England and the International Monetary Fund voicing concern, means gold is serving as a hedge for that too.
“People are equally bullish about AI as they are about gold,” Trevor Greetham, head of multi-asset at Royal London Asset Management, said.
“If there were a deep recession and a crash in AI, you might find gold goes up another leg.”
Gold’s rise has been mostly down to waning confidence in the US dollar. Central banks have been avid buyers, now holding about a quarter of their reserves in bullion, one way of shifting 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 reliance on the dollar.
His main take on the latest gold boom? “It’s Donald Trump,” he said.
