Why investors can’t seem to get enough of gold

London – For centuries, gold has been the go-to haven asset in times of political and economic uncertainty. Its status as a reliably high-value commodity that can be transported easily and sold anywhere offers a sense of safety when everything else is in turmoil.

Not everyone is a fan. Famed investor Warren Buffett has called the precious metal a “sterile” asset, telling Berkshire Hathaway shareholders in a 2011 letter that “if you own one ounce of gold for an eternity, you will still own one ounce at its end”.

Nonetheless, investors have sought refuge in bullion amid US President Donald Trump’s expanding trade war, record US debt levels sparking concerns about the country’s fiscal health and growing encroachment on the independence of the Federal Reserve.

Investors have piled into gold-backed exchange-traded funds (ETFs) in 2025, with total holdings at the start of September reaching their highest point since June 2023, according to data collected by Bloomberg.

The rush to gold has prompted the precious metal to keep setting new price records in 2025, extending a ferocious run from 2024.

Bullion

punched through US$3,500 per ounce to reach a new all-time high

in early September, fuelled by expectations that the Fed will cut US interest rates.

Why is gold considered a safe haven?

For modern investors, it is primarily because of gold’s stability and liquidity rather than any intrinsic utility. 

Gold has a track record of increasing in value in times of market stress. It is also seen as a hedge against inflation when the purchasing power of currencies is eroded. Inflation worries are front of mind for many right now, as Mr Trump’s tariffs risk increasing prices across the global economy.

US inflation, in particular, is in the spotlight as Mr Trump piles pressure on the Fed to lower interest rates.

Gold, which pays no interest, typically becomes more attractive in a lower-rate environment, as the opportunity cost of holding it versus interest-earning assets decreases.

The safe-haven status of gold has also been elevated as Mr Trump’s trade agenda shakes trust in other typical shelters from market gyrations – namely the US dollar and government bonds – and threatens to end the idea of American exceptionalism.

Gold has historically been negatively correlated with the US dollar.

Because bullion is priced in dollars, when the greenback weakens, gold becomes cheaper for holders of other currencies. The dollar reached a three-year low against other major currencies in July and remained subdued by the end of August.

Beyond market movements, owning gold is deeply rooted in Indian and Chinese cultures – two of the world’s largest markets for the metal – where jewellery, bars and other forms of bullion are passed down through generations as a symbol of prosperity and security. Indian households own about 25,000 tonnes of gold, more than five times what is stored in the US depository at Fort Knox.

Physical buyers are famously sensitive to prices, but when gold’s appeal to investors in financial markets starts to fade, buyers of jewellery and bars often step in to grab a bargain, putting a floor under prices in the process.

What was driving up prices before Trump re-entered office?

The metal’s blistering price rally since the start of 2024 was partly driven by huge purchases by central banks, particularly in emerging markets as they seek to reduce their dependency on the US dollar – the world’s primary reserve currency. Gold helps diversify a country’s foreign exchange reserves and guard against currency depreciation. 

Central banks have been net buyers of gold for the past 15 years, but the speed of their purchases doubled in the wake of Russia’s invasion of Ukraine. As the US and its allies froze Russian central bank funds held in their countries, it underscored how foreign currency assets are vulnerable to sanctions.

In 2024, central banks bought more than 1,000 tonnes of bullion for the third year in a row, according to the World Gold Council, and they hold around a fifth of all the gold that has ever been mined. That pace of buying has since slowed somewhat in the face of higher prices.

What could halt gold’s rally?

Following a nearly uninterrupted upward march in the gold price since early 2024, there could eventually be some consolidation as investors bank their gains. A major de-escalation of Mr Trump’s tariffs and a peace deal between Russia and Ukraine could also spur a price decline.

But central banks have been the most important pillar of support for gold’s bullish momentum, meaning they have the power to do the most damage if they trim their reserves. 

There is no indication that any large holder is considering this. The central banks of developed economies have sold very little gold in recent decades compared with the 1990s, when persistent sales sent bullion prices down by more than a quarter over the decade.

Does gold being a physical asset cause any issues for investors?

Owning gold typically is not free. Because it is a physical object, holders have to pay for storage, security and insurance.

Investors buying gold bars and coins will usually pay a premium over the spot price. There can be geographic price differentials too, and traders take advantage of these arbitrage opportunities. 

That is what happened earlier in 2025 when fears that Mr Trump could introduce tariffs on bullion imports pushed gold futures on New York’s Comex significantly above spot prices in London.

There was a worldwide dash among those in possession of the physical metal to shift it to the US to capture the large premium and potentially hundreds of millions of dollars in profit. 

That arbitrage trade came to an abrupt halt in April, when the Trump administration indicated that bullion would be exempt from duties.

The market had a brief scare that this would not be the case, after US Customs and Border Protection said in August that certain gold bars were subject to Mr Trump’s “reciprocal tariffs.” But Mr Trump himself then weighed in to say that gold would not face import taxes. BLOOMBERG