The Gold Rush: Safe Haven or Bubble?
In October last year, I wrote an article asking the questions, why are gold prices rocketing, and is this price movement sustainable? At that time, gold had risen 32% YTD relative to the Australian dollar. Since then, gold went on to finish the year up 40% and is now up 22% YTD for 2025, but of course, it’s only the beginning of May. So, let’s re-ask the question: why is the value of gold still climbing, and is it sustainable?
To recap the October article, the rise in gold’s value was contributed mainly to geopolitical uncertainty and stockpiling by major powers seeking to move away from a global market dominated by the US dollar. To quote the article directly:
“Further adding to the uncertainty is the upcoming US election, which could see a major turn in the Middle East but also a re-evaluation of trade relations with the US. Talk of tariffs on countries like China would likely see even more gold purchased as they further distance themselves from the US.”
For better or worse, this has all come true at a magnitude unexpected to the vast majority of people. With tariffs exceeding 100% now standing on both sides of the US-China trade front, there is no realistic scenario in which China, or its allies, would move back towards the US dollar. Not soon anyway. Even if one side of the fight should back down completely, the precariousness of the situation has been put on display. Importers and exporters at the lowest levels will be looking to foolproof their business models from the resurrection of future trade barriers. So, even if the trade war eases and gold prices dip, a significant crash remains unlikely.
According to Bloomberg, physical gold bullion stock in New York warehouses has almost doubled since the beginning of the year, as fears of a tariff on bullion pushed US gold futures prices significantly above those across the pond in London.
Further adding to the move towards gold has been a sell-off in US Treasuries. US government bonds, usually seen as the haven asset, have suffered, and yields have risen to levels not seen in decades. Investors moving away from US bonds appear to be moving towards either foreign bond markets or gold.
Still, all this price action is based on impacts not yet felt. The real-world effect of tariffs only operate at the speed of container ships, a delay of some months. Thus, the real question is, has the market adequately priced in the disruption and fallout stemming from not just these tariffs, but any future changes to these tariffs? The answer, of course, is only time can tell.
With so much uncertainty around, the best thing you can do is to diversify your portfolio and trust that you can weather out the storm. Gold continues to be a major holding within our All-Weather portfolios, alongside a basket of other defensive minded assets.
