Gold has been
a silent achiever for much of this year – it hasn’t captured headlines like the AI-driven tech boom but has quietly entered “main street” consciousness.
In Australia there have been media headlines about the hundreds of people queuing outside a bullion store in Sydney’s Martin Place to buy gold.
Ironically, in the days that followed, gold prices dropped sharply, including the largest one-day fall in history, over US$200 per ounce.
There’s an old market saying: “When everyone’s in, it’s over.”
While it’s far from true that everyone is buying gold, the recent retail enthusiasm has prompted questions about whether this year’s surge has run its course.
The answer, as always in markets, is not straightforward. A number of long-term tailwinds have converged to create a near-perfect storm for the precious metal.
For centuries, gold has been seen as a store of value, being tangible, scarce and not easily produced.
Its limited supply, both above and below ground, underpins its appeal.
The total amount of gold ever mined globally is estimated at 220,000 tonnes, enough to fit into just five Olympic-sized swimming pools.
The exact whereabouts of all the gold above ground remains the subject of conspiracy theories – for example the gold in Fort Knox was last audited way back in the 1980s, and only a handful of people have ever been inside the vault.
Despite being called a “barbarous relic” by economist John Maynard Keynes, gold was central to the global monetary system for over a century.
Under the gold standard, currencies were defined by, or linked to, gold from the 1870s until the end of the Bretton Woods system in 1971.
Only since then have modern currencies become fiat money – backed by government decree and trust, rather than by a physical commodity.
This shift allowed governments to expand money supply more freely, especially during crises, but it also opened the door to persistent inflation and currency debasement – both factors that continue to support demand for gold today.
Gold’s scarcity and independence from government liabilities make it a natural hedge against uncertainty. The world has faced plenty of that in 2025 – from trade tensions and inflation risks to heightened geopolitical instability.
The “bull market” in gold, however, didn’t start this year. Since its low of US$262 an ounce in 2000, gold has risen by more than 1500%, representing an average annual compound return of about 12%.
Some investors have participated in that remarkable surge, while others have missed out – not least the UK Government and economy.
Between 1999 and 2002, Chancellor at the time Gordon Brown sold off around 415 tonnes of Britain’s gold reserves at an average price of about US$275 an ounce – a move now remembered as the “Brown Bottom”.
What was presented as prudent diversification away from bullion ultimately cost British taxpayers billions as gold’s price multiplied in the decades that followed, reinforcing why the metal remains prized as a long-term store of value and insurance against policy missteps.
Each major financial shock (the dotcom crash, the 2008 Global Financial Crisis and the 2020 pandemic) was met with waves of monetary expansion, and trillions of dollars in newly created money entered the system through quantitative easing and ultra-low interest rates.
When real (inflation-adjusted) rates fall, gold tends to rise as investors seek refuge in tangible assets that cannot be printed at will. Critics point out that gold offers no yield, which is true.
However, in periods of low or negative real interest rates, the opportunity cost of holding gold effectively disappears, allowing it to preserve purchasing power.
With central banks still having work to do in terms of rate cuts (and upside inflation risks) this might not be something that is about to disappear any time soon in terms of a tailwind. Furthermore, it is worth pondering that it could all be a case of “rinse and repeat” when the next global crisis comes along.
Gold has not only set records in US dollars but also in euros, pounds, yen and Australian dollars.
In New Zealand dollars, it recently broke $7600 per ounce for the first time. This broad-based strength reflects both global demand and growing concern about sovereign debt and the sustainability of fiat currencies.
There are particular concerns about the US, which is the default denomination for gold. The US debt-to-GDP ratio now exceeds 120%, a level last seen after World War II.
Servicing this debt has become the third-largest US budget expense, behind Social Security and Medicare. These fiscal pressures constrain the Federal Reserve’s ability to raise interest rates significantly, leaving inflation as the path of least resistance.
Each new trillion-dollar deficit or debt-ceiling standoff reinforces the appeal of assets that lie outside the traditional financial system – most notably, gold.
Central banks have also been major buyers. In 2024, they added about 1045 tonnes of gold to their reserves – the third consecutive year of net purchases above 1000 tonnes.
Gold now represents roughly 20% of global official foreign-exchange reserves, making it the second-largest reserve asset after the US dollar.
This reflects a broader de-dollarisation trend, particularly among emerging-market economies seeking to diversify away from US assets and currency risk.
Beyond economics, geopolitical instability continues to reinforce gold’s traditional role as a safe haven. The wars in Ukraine and the Middle East, tensions in the South China Sea, and rising political polarisation within Western democracies all contribute to a climate of uncertainty – reinforcing gold’s appeal as a politically “neutral” store of value and a source of protection in turbulent times.
While the demand case for gold is “plentiful”, supply has stagnated. New gold discoveries are rare, and environmental and regulatory hurdles make new mine development slow and costly.
The industry’s so-called “peak gold” problem (where production plateaus despite higher prices) means each wave of new demand has a more pronounced effect on price.
Gold’s rally this year is not merely about inflation or speculation. It reflects deeper structural concerns about the sustainability of fiscal policy, the credibility of fiat currencies, and the erosion of confidence in a dollar-centric financial system.
Questions over central bank independence (particularly the pressure being exerted by the Trump administration on Fed policy) have only added to the mix this year.
Therefore, it could well be the case that queues of retail gold buyers lining the streets in Sydney is actually not a “bell-ringing” moment.
However, investors should note that gold is and has been historically very volatile – as recent moves would attest.
It may not always outperform other assets, and particularly in the event that central banks slow gold purchases or reverse them, the US dollar gains in strength or global risk sentiment normalises (in the event trade and geopolitical tensions ease).
However, gold can potentially have a place within a diversified investment portfolio. The Generate Global Direct Fund has exposures to gold through two high-quality global gold producers.
Generate is a New Zealand-owned KiwiSaver and Managed Fund provider managing over $8 billion on behalf of more than 175,000 New Zealanders.
This article is intended for general information only and should not be considered financial advice. The views expressed are those of the author. All investments carry risk, and past performance is not indicative of future results.
To see Generate’s Financial Advice Provider Disclosure Statement or Product Disclosure Statement, go to www.generatewealth.co.nz/advertising-disclosures/. The issuer is Generate Investment Management Limited.
