Gold has been on a tear in 2025, surging 50% in value and setting more than 30 nominal records for the year to date. During September alone, gold racked up a 10% gain as investors fretted about inflation and a looming US government shutdown. Gold is at the top of the performance tables for 2025, well ahead of the strong gains in the S&P 500 (up 15%) and the MSCI World Index (up 18%).
The yellow metal’s bull run looks even more impressive when you consider that it has finally smashed a record that has stood for more than 45 years. At around $4,000 per ounce, the gold price is trading at record levels not only in terms of nominal value, but also in real (i.e. inflation-adjusted) value. Gold peaked at around $850 in January 1980, equivalent to around $3,600 today, depending on the inflation measure one uses.
For clients who are invested in South African markets, the elevated gold price is a major reason for the stellar returns from the JSE All-Share Index (ALSI) in 2025. The Precious Metals and Mining Index on the JSE has leapt 196%, thanks to the outperformance of gold, platinum, and other platinum group metals. According to Sygnia, the gold sector’s weighting has now reached 15% of the ALSI.
Gold shines during crisis times
Gold traditionally shines as an asset class during times of macroeconomic crisis and global uncertainty. For example, gold prices increased 8% in the immediate aftermath of the 9/11 attacks in 2001 as investors flocked to stability. Likewise, gold rose 50% during the global financial crisis of 2007 to 2009, even as global equities markets plummeted 54%.
During the COVID-19 pandemic, gold briefly topped $2,000 for the first time before central banks and governments intervened to stabilise the financial markets. Gold has also shown resilience during other times of geopolitical or macroeconomic turbulence, such as the European sovereign debt crisis and the Brexit referendum.
Different factors supporting the gold price in 2025
However, we cannot describe 2025 as more of the same, despite the confluence of risks in the market. Even though investors are concerned about sticky inflation, trade wars, conflict in the Middle East and Ukraine, the US’s debt trajectory and political landscape, equity markets remain robust.
It is unusual to see both gold and stock markets rise strongly in tandem. Furthermore, gold has continued its climb, despite the Volatility Index falling dramatically from its peak in April, just after US President Donald Trump announced his “Liberation Day” tariffs. This suggests that there might be a deeper structural shift underway, rather than just hedging against uncertainty.
There are several factors that are converging to create this unusual scenario. One part of the explanation may lie in the relative weakness of the US dollar, which is down around 9% compared to a basket of rich country peer currencies for the year to date. In recent years (2018, for example), the gold price and the US dollar have sometimes risen in unison, but that was unusual.
A second factor is central bank buying, especially among BRICS and Gulf nations. Since Russia’s invasion of Ukraine in 2022 and the subsequent freezing of Russia’s dollar reserves, many emerging-market central banks have accelerated diversification away from the US dollar. For these countries, gold offers a store of value that is immune to sanctions and currency debasement.
The value of bullion held in London vaults exceeded $1 trillion for the first time this year, and gold has eclipsed the euro as the second-largest asset in global central bank reserves. As Goldman Sachs puts it, central banks have become ‘conviction buyers’ that purchase gold consistently, regardless of the price. Their flows have helped set the price direction this year.
Thirdly, there are deep concerns about the US’s fiscal trajectory. Many are worried about the Federal Government’s ability to get the national debt and government deficits under control in the face of expansionary spending and deep tax cuts. They are also sceptical of the Fed’s ability to keep inflation under control, especially as Trump puts the Fed under more political pressure. At the time of writing, gold topped $4,000 for the first time, fueled by the US government shutdown and the funding impasse in Washington.
Finally, the gold market is more liquid and accessible. In addition to the physical metal, investors have access to a wide range of gold-backed instruments. Products such as gold exchange-traded funds (ETFs) have made it simpler to access gold as a safe-haven asset, even for the retail investors Goldman Sachs describes as “opportunistic buyers”.
Structural shift or a bubble?
For long-term gold bugs, gold’s excellent performance this year may seem like vindication. But gold has still not historically produced the inflation-busting, long-term returns of equities. Since the 1980 peak, gold has delivered annualised returns of 3.26% per year compared to 13% for the S&P 500 and around 8.7% for the markets that comprise today’s MSCI World Index. This illustrates how painful the long gold bear market was for investors who bought gold at the top 45 years ago.
The question investors are asking today is how much longer gold’s hot streak can continue. The likes of Goldman Sachs raised its gold price forecast to $4,900 an ounce by December 2026, citing strong structural demand from central banks and monetary easing from the Fed. Elevated central bank buying is a “structural shift in reserve management behaviour, and we do not expect a near-term reversal,” wrote commodities strategist Lina Thomas of Goldmans.
Indeed, if we are entering a period of structural dollar weakness and if US rates decline while inflation remains elevated, that could be supportive of the gold price. But the value of gold may be somewhat stretched. The risk of a correction cannot be dismissed if the dollar stabilises or the Fed chooses to tighten in order to dampen prices.
Incorporating gold into investment portfolios
Dynasty’s domestic equity and multi-asset portfolios have either direct exposure to gold (via a gold ETF), or indirect exposure through the gold shares held by our Satrix ALSI tracker and actively managed funds.
Our Investment Committee is currently evaluating the inclusion of gold ETFs and gold mining stocks in our global portfolio solutions, where appropriate, notwithstanding the sharp appreciation in the precious metal’s price year to date.
A gold ETF can also be used as an alternative asset class to holding cash in dollars.
