Analysis: High prices for gold reflect the exceptional economic and geopolitical uncertainties the world faces in the coming years
In 2024, gold prices dropped below $2,000 per troy ounce after holding above that level for two straight months. Traders once again seemed to lose faith in gold, as the psychological barrier of a big round number appeared to have discouraged further buying.
Now, gold is flirting with what would have seemed inconceivable just a year before: an all-time high of $3,170 per ounce. With gold trading around $2,900 for most of February and into March, up from $2,600 at the start of the year, the question arises: what has driven these record prices in 2025? Was this expected? And is it good or bad news?
The role of central banks
Two years ago, my piece on why anyone would want to buy gold highlighted the unusually high level of central bank purchases in 2022. That year, central banks bought over 1,000 tonnes of gold—worth over $56 billion that year—a move that was wholly unexpected by gold market experts. Conventional wisdom suggested that rising global interest rates, following post-pandemic inflation, would dampen gold’s appeal, as higher bond yields made interest-bearing assets more attractive.
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However, gold has a diverse set of buyers beyond just financial markets investors, including central banks and jewellery buyers. The massive central bank purchases in 2022 offset weaker investor demand, and these institutions continued to buy over 1,000 tonnes annually for the next two years. In 2024, central banks had accumulated more than $80 billion worth of gold. For perspective, total Irish government spending was €96 billion in 2024. Central banks have become buyers of gold since 2010, having been sellers since gold’s link to money was cut in the early 1970’s.
This aggressive accumulation by central banks reflects concerns about continued higher than desired levels of inflation around the world, war in the Middle East and Ukraine and a desire to diversify reserves away from traditional currencies like the US dollar. The People's Bank of China (PBOC) reported acquiring 224 tonnes in 2023. In 2024, European central banks led the purchases, with Poland adding 89 tonnes to its reserves. So far 2025 is following the same trend with continued central bank buying across the globe.
Trump and tariffs
Additional geopolitical uncertainty beyond war has played a significant role in gold’s price surge in the last six months. Fears of potential tariffs by US president Donald Trump on gold imports to the US have also led to logistical issues for gold traders. Anticipating higher costs, traders have rushed to import gold into the US before tariffs are imposed. This has driven up US prices which means gold is up to $20 more expensive in New York compared to London. Usually, prices in these two markets are closely aligned, but traders have been transporting gold bars from London to New York to exploit this price differential.
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Such movements have historical parallels. In a recent paper I show that in the early 1930s, French central bank demands for gold bars pushed the London price above the official Gold Standard rate. More recently, during the pandemic, reduced air travel made it difficult to transport gold between markets, leading to price divergences between London and New York. However, both past episodes had no long-term impact on gold demand or its pricing mechanisms, suggesting that the current disruptions may be temporary and not a forecast of longer term problems.
Investors join the gold party
While central banks were the primary drivers of gold’s rise in previous years, 2024 was when investors finally joined the rally. With interest rates stabilising and expected to decline in 2025, gold has become relatively more attractive compared to bonds.
The fourth quarter of 2024 saw a resurgence of interest from exchange-traded fund (ETF) buyers, providing an accessible way for both large and small investors to own gold. Data from the World Gold Council shows that February has seen the largest one-week inflow into gold ETFs (99.9 tonnes) since early 2022, driven primarily by North American investors.
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Stay gold: the future
This explains the dramatic rise in gold prices, but what does it mean for the future? Historically, gold has experienced bull markets with gains ranging from 450% to 800%. In the current cycle, gold has risen approximately 300% from its low - meaning that if this is the peak, it would be the weakest bull market on record.
Gold is often viewed as a hedge against crisis, leading some to worry recently that these record prices signal impending economic disaster. However, history suggests the opposite. Gold’s last major price peak was in September 2011, during the height of the Eurozone crisis, when the Troika was overseeing Ireland’s bailout. That period marked the most economically turbulent phase of the crisis, but the rises were due to bad economic conditions that were known and it wasn’t somehow predicting what would happen in the future.
Gold’s recent rally is driven by fears of persistently high inflation following Covid-related deficit spending and supply chain disruptions, as well as ongoing war and trade instability. Rather than predicting the future, gold’s price reflects what has already occurred—such as the Federal Reserve’s forecast of a US economic contraction in 2025—highlighting the exceptional economic and geopolitical uncertainties the world faces in the coming years.
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The views expressed here are those of the author and do not represent or reflect the views of RTÉ
