ClockWise: What’s happening with gold and will the price rally continue?

For decades, investors have seen gold as a safe haven asset. It has a long history of preserving value and offering protection during times of great uncertainty, economic crisis and geopolitical tensions.

However, over recent months, the precious metal has become a significant driver of return. Gold has done far more than just preserved value – it has doubled in value since August 2024 (Chart 1).

Following a 66% rise last year, the price of gold moved through $5,000/oz on 23 January, for the first time in history. During the week commencing 26 January, prices briefly rose to a high of $5,500/oz midweek before sharply retracing these moves into the weekend. Volatility has remained at incredibly high levels since. Investors are wondering if the price of this ‘safe haven’ gone too far or whether the rally can go further amid the global search for an effective hedge in this geopolitically intense environment.

We have held exposure to gold over the last decade through our allocation to commodities and have benefitted from an additional tactical allocation to the precious metal as an asset over the last 18 months. We are still positive about the asset, even at these levels, although we did scale back our positions in January when volatility became extreme.

Chart 1: Gold has risen over 100% over the last two years

Geopolitical worries have been a key driver of this rally (and they aren’t going away)

Geopolitical developments over the last two years are an obvious driver of the rally in gold prices. Escalations in international tensions, from armed conflicts and trade disputes to rising political instability, have significantly heightened global uncertainty. It’s typical during such environments of uncertainty for gold to be a sought-after hedge and see notable investor inflows.

Last year, we had a constantly changing backdrop on US tariff demands which led to sharp worries about global recession and financial market instability. This year geopolitical tensions have intensified rather than eased, including US actions in Venezuela, renewed tariff threats relating to Greenland, and a further escalation of tensions in the Middle East.

Traditional drivers of gold have been supportive (falling rates and a weaker US dollar)

Historically, periods of sustained US dollar weakness have aligned with stronger performance across precious metals, and the current environment is no exception. This combination of a softening US dollar and a declining yield backdrop has given gold a substantial boost and provided a rationale for this rally.

It’s no coincidence that last year’s mega rally in gold (its best rally since 1979) coincided with the second worst year for the US dollar in more than two decades (the US dollar index was down 9.4% in 2025). The combination of a weaker US dollar and declining real yields makes US bonds a less attractive store of value and supports stronger precious metal performance. Lower opportunity costs make non‑yielding assets like gold more attractive.

Central bank buying – a structural change supporting the rising gold price?

Perhaps the greatest force driving gold markets right now is the support from central banks. Central banks have materially increased their purchases of the precious metal in recent years; since 2022, purchases have topped 1,000 tonnes annually. This notable pick-up in central bank purchases started when the US took action to freeze Russian dollar reserves in 2022 following the invasion of Ukraine. This unprecedented move seemingly accelerated efforts for global central banks to diversify their reserves, especially in emerging market countries where foreign reserves had typically been dominated by US dollars.

Gold has been the notable beneficiary of this move away from the US dollar. Global quarterly net purchases rose from a pre-2022 average of 127 tonnes, to an average of 257 tonnes after (Chart 2).

Chart 2: Global gold demand from central banks has risen materially (so have gold prices)

Central banks have communicated no plans of slowing down this rate of purchases. According to the World Gold Council’s survey of central banks, 95% of banks expect global gold reserves to rise over the next 12 months, with 73% expecting US dollar share of global reserves to fall over five years. So, despite the levels, large scale structural buying is in place.

We’ve held gold as a tactical position since July 2024, and it’s been a strong contributor to added value. The move has been sharp in scale and speed but the key drivers behind it still look supportive: geopolitics remain tense, the US dollar has softened, real yields have fallen, and central banks keep buying aggressively. All of that suggests the rally doesn’t have to be over, even if we should expect some bumps along the way.

Elevated volatility warrants some caution in the short term

Following such a strong rally, investors have rushed in to profit from it. This has seen positioning become quite stretched, which has led to large daily moves in the last weeks. The implied volatility of gold has spiked to levels only seen before during the global financial crisis and Covid (Chart 3). The realised volatility for gold over the last month has been greater than equities and even the US tech sector. Sharp moves in either direction can continue in the short term.

Chart 3: Gold one-month implied volatility

We believe that structural and macro forces supporting the asset class remain intact and in a world that feels as unpredictable as ever, gold continues to do exactly what we want it to do: act as a diversifier and a hedge against geopolitical and policy risk in multi asset portfolios.

For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.