Gold’s latest gallop to all-time highs has drawn comparisons with the last time political and economic turmoil were the main drivers of record prices, back in 1980. But market players say the nature of this rally – and potentially its ability to endure – look different.
With tensions running high between historic allies over U.S. tariffs, global trade, and wars in Ukraine and the Middle East, big powers look unlikely to pull together swiftly this time to resolve the issues driving interest in bullion as a haven from risk, analysts say.
The metal’s surge above $3,000 an ounce, driven most recently by U.S. President Donald Trump’s new round of tariffs on trading partners, has been the first time in a long time that geopolitics and economic uncertainty have served as the top factors moving the gold market, HSBC analyst James Steel said.
Spot gold hit a record $3,167.57 per troy ounce last week and is up 16% so far this year, on top of 27% growth in 2024. While the market’s trajectory won’t be linear, analysts say gold’s entry into uncharted territory looks more sustainable than the one seen 45 years ago.
As the precious metal has an inverse correlation with trade flows, analysts said Trump’s stance on tariffs – including Wednesday’s announcement of Washington’s steepest trade barriers in more than 100 years – has driven new investors into gold, fuelled by fear of an all-out trade war.
The dollar is also typically known to be a safe-haven asset, but there are some signs of the erosion of its status as uncertainty over tariffs intensifies.
More broadly, since taking office 2-1/2 months ago, Trump has upended the world order, signalling the U.S. may no longer guarantee Europe’s security as Washington has since World War Two, and radically shifting the U.S. approach to war in Ukraine. He also mooted a possible U.S. annexation of Greenland.
The issues driving gold 45 years ago – most notably the Iranian Revolution and the oil crisis – were remedied relatively quickly, leading gold to decline, HSBC’s Steel said.
“But the breakdown in international cooperation in the last few years has led to gold staying permanently high,” he said. “It leads one to think… there is a bigger geopolitical bid in the market.”
BREAKDOWN OF COOPERATION
The trade tensions are only the latest in a string of factors driving gold higher.
The 2020s have seen a two-year coronavirus pandemic followed swiftly by Russia’s 2022 war with Ukraine, the Chinese property market crisis, and Israel’s war in Gaza.
The Ukraine war involved the precedent of Western sanctions freezing half of Russia’s foreign currency reserves, with Moscow managing to keep effectively only gold. That attracted non-Western central banks towards bullion as they sought to diversify their reserves away from the dollar.
Monetary easing and worries about budget deficits also drove further Western investment in bullion last year.
Handling any of those issues may take global cooperation of a kind not yet seen in addressing the current turmoil surrounding tariffs.
“Unlike other recent crises that triggered coordinated global responses, this time there’s no real prospect of policy alignment,” said George Griffiths, head of dealing at brokerage AMT Futures, referring to escalating trade tensions.
While the market has this year conquered a series of milestones, one more remains. StoneX analyst Rhona O’Connell noted that gold peaked at $850 in January of 1980, which in dollar terms would equate to $3,486 today.
“While we have most definitely hit new highs in nominal terms, you could argue that we might not have hit it in real terms,” HSBC’s Steel said, referring to the 1980s milestone.
That could change. The current backdrop has widened expectations of an extended run higher where 2026, instead of this year, is being seen as the peak of gold’s rally.
On March 26, BofA commodity strategist Michael Widmer raised his gold price forecast to $3,063 and $3,350 in 2025 and 2026 respectively, from $2,750 and $2,625 prior, and reiterated it on Sunday. He now sees spot gold prices hitting $3,500 within two years.
“Calling for $3,000 was easier than calling for $3,500 for gold. But what’s the other risk here?” said Widmer.
“The risk is that you go back to where you were two years ago… where you have a more collaborative environment globally, no risk of trade wars, U.S. Federal Reserve raising rates, economies stabilising and the sentiment stabilising. In that case, the gold trade would be effectively over.”
“But I think it’s unlikely.”
(Reporting by Polina Devitt and Veronica Brown)
