On track for its biggest annual gain since 1979, gold has breached key psychological resistance levels of $3,000 per troy ounce in March and $4,000 in October, up 54% so far this year.
Fueling this run are political tensions and uncertainty over US tariffs, and more recently a wave of fear-of-missing-out (FOMO) buying.
“The nature of the rally has changed, now driven by Western investors rather than the tenacious emerging market buyers of most of the past two years,” said John Reade, senior market strategist at the World Gold Council.
“This means more uncertainty and volatility, even as the factors driving gold appear to persist,” he added.
On Monday, gold hit a record $4,381 an ounce, a level few would have predicted a year ago or ever expected in their lives. Delegates heading to the London Bullion Market Association (LBMA) conference in Japan next week had predicted a price of $2,941 at this point a year ago. After hitting so many major milestones, bullion saw a 5% sell-off on Tuesday, its steepest daily decline in five years, pushing the market’s relative strength index, which measures the magnitude of price changes, from “overbought” to “normal” for the first time in seven weeks.
“A consolidation would in fact not be unusual after such a sharp and steep rally and should be considered healthy,” said Julius Baer analyst Carsten Menke. “The fundamental backdrop for gold remains favorable.”
US interest rate cuts and stock prices
Gold’s record high on Monday lifted it 20% since the US Federal Reserve’s interest rate cuts in September.
That outpaced bullion’s performance over the Fed’s most recent easing cycles, according to analysts at Oxford Economics.
“In previous cycles, the Fed did not cut interest rates on US equities to all-time highs, while market bubbles and inflation were still convincingly above their target,” said Nicky Shiels, head of metals strategy at MKS PAMP.
“It appears that this ‘everything bubble’ has room to continue operating, and gold prices above $4,500 will only support retail FOMO purchasing.”
Gold prices have doubled in the past two years, surpassing the 1980 inflation-adjusted high of $3,590 (then nominal high of $850), calculated by MKS PAMP.
A SHOWY EYE ON THE RISING S&P 500
Market specialists are closely watching a rising S&P 500 stock index and a simultaneous influx of investor funds into precious metals, taking into account historical cases when sharp stock market corrections forced the selling of safe-haven assets, including gold.
“Some of the gold buying has been done as a hedge against stock market declines,” HSBC analyst James Steel said in a recent note.
“A correction in stock prices could, as in the past, lead to extended liquidations as investors look to raise cash or meet margin calls.”
CENTRAL BANKS, INSTITUTIONAL INVESTORS
With exponential gains over the past month, emerging market central banks don’t have to do much to continue achieving their common goal of increasing the share of gold in their foreign exchange reserves for diversification.
While central bank purchases are widely expected to remain high for years to come, having supported bullion demand since late 2022, the price increase automatically increases the value of their holdings.
“That thinking also applies to long-term institutional investors who may be reaching their portfolio thresholds and need to de-risk and reduce their gold holdings,” Shiels said.
Analysts also warn that if investor momentum weakens in 2026, excess physical supply could weigh on prices as jewelery demand declines in key consumer regions.
According to the Trade Data Monitor, Chinese gold imports fell 26% in tonnage from January to September. Indian imports fell by 25% between January and July.
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