Gold just hit an all-time high, here’s why
- Investors rushing to gold have pushed its price to record-high levels
- Inflation protection is the goal but gold isn’t a surefire way to hedge against price rises
The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.
The gold price is on a tear. Having flirted with the $2,000 level a few times in the run up to 2024, the yellow metal has shot up over the past year, hitting $3,060/troy oz today, according to the Royal Mint - a record high.
So, what’s fuelling the gold rush?
Market nerves driving appetite for gold
Investors are becoming increasingly worried that the rollout of US tariffs could stoke the flames of a possible trade war, boosting inflation and potentially triggering a recession in the US. These fears are having a knock-on effect in the currency markets too, with the dollar weakening against a basket of other currencies.
Then there are concerns about tensions rising again in the Middle East and, when uncertainty is high, investors want a safe haven - they’re rushing to gold in an effort to find it. It means the gold price is well up this year and is actually outperforming the US market so far in 2025, and over the past three years.
Discrete calendar year performance
| 2020-21 | 2021-22 | 2022-23 | 2023-24 | 2024-25 | |
| S&P GSCI Gold Spot | -3.9% | 17.2% | 10.4% | 4.2% | 36.4% |
| S&P 500 | 39.5% | 21.8% | -3.7% | 26.7% | 7.9% |
As at 18 March 2025. Source: FE Fundinfo. Total return basis, in local currency. Past performance is not a reliable guide to future results.
Is gold really a safe haven asset?
It’s not new to see investors clamber for gold in times of market stress. We like things we can touch and understand when the world gets a bit more confusing. It gets tricky though because gold isn’t a perfect inflation hedge. It tends to perform better when there is high inflation or when there is a large inflation surprise - something the market is clearly predicting tariffs will provoke - but research from Duke University has shown gold only works as a decent inflation hedge when measured over a period of at least 100 years. I’m not sure about your investment time horizon but mine doesn’t stretch that long.
Read more: Inflation and investing to beat it
In the short term, gold has its own fluctuations, just like any other asset. These don’t always coincide with inflation rising and falling so it’s no guarantee gold will perform well when inflation starts to rise. What’s more, it doesn’t produce profits or provide an income like stocks can, so long-term holders can’t build up that glorious compound effect.
None of this has put off the gold bugs recently though, which reflects just how much current market and geopolitical uncertainty is affecting markets. If the unease persists we could see gold stick around above the $3,000 level but if we start to see calmer waters in the equity market, those using gold as a port in a storm could jump ship.
Is it a good time to invest in gold?
In the end, it’s rarely good practice to be making wholesale changes to your portfolio by chopping and changing between assets regularly. Just like switching queues at the supermarket, you might find out it was better to stay put instead. Your asset mix should reflect your appetite for risk, the time horizon you have to meet your financial goals and how bumpy a ride you are prepared to put up with. If you’re constantly changing the makeup of your holdings, it’s unlikely to be consistent with these guiding factors. It also means you’re likely to be theme-chasing and getting into the latest idea just as it peaks.
Read more: What assets can I invest in?
If you are thinking about allocating some of your money to new assets in a bid to diversify, make sure you keep in mind that uncorrelated assets will naturally perform differently from each other - hence the point of diversification. If gold makes up a part of your portfolio, it will likely be influenced by the type of market fears we’ve seen over the past year. That means it can be unpredictable and won’t always react as you think it might.
Sources:
- Royal Mint
Important information
When you invest your capital is at risk. Past performance is not a reliable guide to future returns. Your investments and the income you receive from them may go down as well as up so you may get back less than you invest.
Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice.
