The gold market has reached unprecedented heights this month, surging beyond US$2,900 (A$4,544) per ounce and significantly outperforming major stock indices. With a 12% increase since the start of the year, gold’s impressive performance eclipses the modest 4% rise of the US S&P 500 and the mere 2% gain of Australia’s ASX 200. Following on from a remarkable 27% leap in 2024—the largest annual increase in 14 years—gold continues to captivate investor interest.
The powerful rally in gold is underpinned by multiple factors, notably increasing global uncertainty and fears surrounding inflation, heightened by former US President Donald Trump’s threats to impose tariffs. Central banks worldwide have also intensified their gold purchases, substantially contributing to the recent upward pressure on prices.
Gold’s allure derives from its diverse sources of demand, which are categorised into jewellery, technology, investment, and central banks. Jewellery remains the dominant segment, accounting for approximately half of global gold consumption in 2024, followed by investment demand at 25%, central banks at 20%, and technological uses at around 5%. Fluctuations in any of these segments significantly influence gold price movements, with central bank acquisitions currently driving the rally.
The complexities of gold pricing are intensified by the global nature of both supply and demand. Gold mining is distributed internationally, from resource-rich nations in Africa to industrial leaders like Australia and Canada. Demand similarly crosses borders, with China and India prominently driving jewellery demand, complemented by global investor activity and strategic purchases from central banks large and small.
Gold’s enduring attractiveness as an asset lies primarily in its reputation as a reliable store of value, effectively preserving purchasing power over long periods. Unlike fiat currencies such as the US or Australian dollar, gold retains or increases in value during inflationary periods, making it a strong hedge against inflation.
Moreover, gold is widely acknowledged as a safe haven asset, sought after during geopolitical or economic upheaval. Historically, gold has surged following events such as the 9/11 attacks, the 2008 global financial crisis, and the onset of COVID-19 in 2020. However, these crisis-driven spikes tend to be short-lived, typically subsiding within weeks.
Recent geopolitical tensions, notably Russia’s invasion of Ukraine in February 2022 and subsequent financial sanctions—especially the freezing of Russian foreign reserves—have prompted central banks to reassess their exposure to foreign currencies and diversify reserves into gold. This shift led to record central bank gold purchases totalling 1,082 tonnes in 2022, with subsequent years also recording historically high acquisitions.
This central bank response not only highlights gold’s appeal as a strategic asset but has also impacted currency markets. Central banks exchanging US dollars for gold inevitably weaken the dollar, thus elevating gold prices, demonstrating gold’s additional function as a currency hedge. This is particularly valuable for investors exposed to more volatile currencies, such as the Australian dollar.
Unlike previous gold rallies sparked by singular geopolitical or economic shocks, the current upward trend is more multifaceted, driven by a convergence of factors rather than an isolated incident.
In summary, gold continues to prove itself as a vital asset class, combining attributes as a safe haven, an inflation hedge, and a currency stabiliser, amidst heightened global uncertainty.
London-listed company KEFI Gold and Copper plc (LON:KEFI) is an exploration and development company focused on gold and copper deposits in the highly prospective Arabian-Nubian Shield. The Company operates in Ethiopia and Saudi Arabia with projects including Tulu Kapi project, Jibal Qutman EL and Hawiah.
