Just how high will the gold price go?

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The latest chapter in gold’s glow-up has pushed it to yet another record high. The yellow metal pipping $4,379/oz last week means the S&P GSCI Gold Spot Index is up 59.5% in dollar terms in 2025. While some investors have been glued to AI hyperscaler valuations and their effect on the S&P 500, the apparent resurgence of the old school FTSE 100 and signs of a rotation away from the US into European equities, gold has outshone them all this year.

The gold price was working its way up the page even before tariff talk took centre stage in April. Seemingly stubborn inflation, growing geopolitical tensions in Europe and the Middle East and firm central bank demand were all fuelling an uptick in bullion. If investors hadn’t looked to gold already, Liberation Day tariffs gave markets a tangible trigger to look for a hopeful safe haven, providing another leg up. Broadly speaking though, that only explains the rally in the first half of the year. The S&P 500 has delivered around 35% since post-Liberation Day lows though, with relatively low volatility, so gold’s new highs in October can’t just be about a flight to safety, even if global uncertainty still abounds.

Firmer faith in a string of US interest rate cuts since the summer are likely to have maintained gold’s lustre - when yields on fixed income and cash are falling, the fact that gold doesn’t produce an income starts to matter less and less.

Part of the gold rally’s staying power might also have something to do with investor appetite for exchange-traded funds tracking the gold price. Money has been pouring into gold-backed ETFs, with September notching up record monthly inflows, according to the World Gold Council. [1] Increased buying means physically backed ETFs have to buy more gold to make sure their news shares are, well, physically backed. In short, momentum itself became a catalyst.

It’s also likely that FOMO (fear of missing out) has been a factor, as is usually the case when parts of the market suddenly realise an asset is rising and rush to grab a piece of the action before the rally runs out of steam.

That last element of the gold price rise (as well as the difficulty in discerning who’s in it to hedge, how much ETF flows are contributing to the rally, and who’s here to speculate) has the potential to skew expectations from here. Whereas asset allocators may be wary of tech valuations, offsetting AI-sensitive positions elsewhere, there’s no telling how enthusiastic or fleeting the speculative crowd might be. That makes predicting the next step for gold tricky - still, some of the big banks are willing to have a go. Goldman Sachs now sees gold hitting $4,900 in 2026 [2] with HSBC saying prices could reach $5,000 next year [3] but, as Yogi Berra reminds us, “It’s tough to make predictions, especially about the future”. So, there are a few important caveats to those predictions, namely that the road that got us here keeps on offering the same twists and turns into the new year.

HSBC says a consistent upward trend would likely be sustained “through 1H26 by geopolitical risks, economic policy uncertainty and rising public debt” so if that heady mix of negativity doesn’t play out, the gold surge could quieten down. Also, gold doesn’t pay an income so it’s possible that opportunists and hedgers might fade the gold trade if AI worries don’t escalate and they’re still looking over the fence at companies still raking in revenues and casting off dividends.

It’s common to see investors flock to so-called safe-haven assets when economic and market measures start to raise eyebrows. While gold has certainly outstripped inflation this year, it’s not a surefire way to hedge against price rises though, as sector academics Erb and Harvey reminded us this month [4]. Retracing their original 2013 paper, the duo showed that gold only manages to keep up with inflation over the very long term (think multiple decades) but even then the two are far from negatively correlated, which is what many hedgers are looking for. There have even been periods of over 10 years since 1985 when the inflation hedging angle hasn’t worked at all.

We simply don’t know how long the current enthusiasm for gold will last which makes the case for adequate diversification, even if you are a certified gold bug. The world is an uncertain place but, sometimes, the markets start to absorb that uncertainty and get used to it. The likelier that starts to look, the less lustrous gold might appear.

Discrete calendar year performance

As at 17 Oct 2025. Source: FE Fundinfo. In local currency. Past performance is not a reliable guide to future results.

[1] Forbes, October 2025. [2] Reuters, October 2025. [3] Reuters, October 2025. [4] SSRN, October 2025.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

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. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.