Gold Is Soaring: Here’s Why Investors Are Rushing In

Gold has been smashing records lately, but don’t let that panic you. Now is still a good time to tuck some of this safe-haven metal in your portfolio – with the economy in a slowdown, markets looking uncertain, and global tensions heating up.

I mean, look, if you think a recession might be coming, gold can be a decent insurance policy. And if you don’t know what’s coming – and let’s face it, who does? – holding some gold is a good way to protect your money. It tends to retain its value, even as other assets see theirs fall.

Let’s look at why that is – and how you can invest in the much-loved metal.

Reason 1: The interest rate picture.

You just have to quickly jump back a couple of decades to understand where gold prices are today and why they have every reason to keep rising.

Twenty years ago, the metal’s price was known to be pretty stagnant. In fact, it had spent a quarter of a century mostly moving sideways. The commodity was so boring that in the early 2000s, the UK actually decided to sell off half of its reserves, roughly 400 tons.

Then along came the global financial crisis, which shook assets to their core in 2008. Investors went looking for the market’s safe havens, sending the price of gold up around 20% that year. But the real action was still to come. To cope with the crisis, policymakers around the world dropped their key interest rates to near zero and authorized massive “quantitative easing” bond-buying programs, aimed at forcing bond yields lower (because as bond prices rise, their yields fall). The idea was to lure folks out of safe government bonds and encourage them instead to invest in stocks, start businesses, buy homes, and generally spend money to perk economies back up again.

Gold's price per ounce. Source: TradingView.

In the world’s biggest economy, the total money supply or monetary base tracked by the Federal Reserve Bank of St. Louis stood at $830 billion in early 2008 (see chart below). A little over three years later, it had tripled to $2.6 trillion, as interest rates fell from 4% to just 0.15%. The same kind of thing happened in places all around the world. And gold responded, in turn, by rising over 100%, from $880 a troy ounce at the end of 2008, to over $1,600 in mid-2011.

By 2013, with the US and its job market in better health, the Federal Reserve (Fed) slowed its bond-buying parade, sparking what was called the “Taper Tantrum” and sending bond prices higher. As the money supply contracted, gold responded by gradually dropping some 25% from around $1,600 in early 2013 to the $1,200 region in late 2018.

A year and a half later, the US economy faced a new crisis: Covid-19. The economy dipped briefly into recession again, and the policymakers again responded with a raft of emergency measures. This caused the money supply to almost double from $3.4 trillion in January 2020 to $6.4 trillion at the end of 2021. Interest rates were slashed from around 1.5% to 0.05%. And gold jumped from around $1,400 at the start of 2020, to $1,800 by the end of 2021.

You’ll notice the pattern emerging here – as interest rates move lower, gold moves higher.

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The US monetary supply. Source: Board of Governors of the Federal Reserve System (FRED).

Reason 2: Trade war trouble.

More recently, it is US President Donald Trump’s trade war that has caused the gold price to break records. The announcement of steep import taxes on certain goods from major trading partners – Canada, Mexico, China, and Europe – has ignited some very real fears that the resulting price increases will simply be passed on to consumers. That’ll spark inflation and will likely nudge a sluggish US economy into recession.

And, naturally, these tariffs haven’t been taken lying down, with China, the EU, and Canada all responding in kind with retaliatory tariffs on US goods. If prices for goods are arbitrarily increased around the world, then the money in your pocket will become worth a bit less – and that’s a good reason for people to search for investing safe havens.

Reason 3: Gold is as gold does.

Gold was around for thousands of years before the dollar, the yuan, the euro, or the pound – and for all we know, it’ll be around for thousands of years after. As a medium of exchange, it’s almost without parallel: you can take a gold coin pretty much anywhere in the world and receive goods and services in return for it.

Gold is also incredibly rare. The World Gold Council’s most recent estimates show that some 216,000 tons of gold have been mined to date. If you gathered it all up and stacked it neatly on a tennis court, it would stand just 33 feet (10 meters) high. Or, if you wanted to go all Auric Goldfinger and relieve the US Federal Reserve of its 8,100 tons, it would only take five double-decker buses to get it out of there, and one Boeing 747 to fly it out of the country. That scarcity and the relative devaluation of traditional currencies drive gold prices.

The World Gold Council estimates some 55,000 tons of gold are still in the ground, but it’s increasingly dangerous, difficult, and expensive to extract it.

Reason 4: Global tension.

The collaborative effort that allowed the world economy to recover from the global financial crisis seems like a pipe dream now. Countries like China, India, and Turkey have all dramatically increased their gold buying as they seek to move to a global system that doesn’t rely on the US dollar.

Violent conflicts in the Middle East and Ukraine, and tensions elsewhere have all put stress on the world economy and pushed investors to the safety of gold.

It is for this very reason that central banks have accelerated their buying of gold, with purchases exceeding 1,000 tons for the third year in a row. Buying increased significantly during the last three months of 2024, reaching 333 tonnes and bringing the annual total for central banks to 1,045 tons, according to World Gold Council figures. Just last month, China initiated a pilot program to allow insurance companies to purchase gold – which could unlock an additional $27 billion in buying power.

Quarterly gold demand in volume, tons, and value. Sources: ICE Benchmark Administration, Metals Focus, World Gold Council. *Data to 31 December 2024.

Reason 5: Gold as an investment.

On the face of it, gold seems like a terrible investment. It pays no interest, generates no income, makes no profit, and no growth. Still, there are good reasons to hold it. The first rule of investing is the preservation of capital (i.e. hanging onto your money), and in that respect, there are few better options. From the pharaoh’s tombs, through the Viking hordes, to today, gold has always been the number-one store of value. Makes sense, then, that investing pros recommend allocating 5% to 10% of your total portfolio value to the metal.

Gold also has a “low correlation” to other asset classes – so even when stocks or bonds are in freefall, gold often will go its own way. That offers investors some protection when markets crash. And that insurance against the unknown has allowed gold to deliver steady gains.

What’s more, some other stores of value have lost some of their luster recently. As the interest rate cycle shifted last year, with rate cuts in the US and elsewhere, holding gold became more attractive. And that’s because the return offered by holding government bonds, often seen as the safest investment, fell as rates were cut. And those high-interest savings accounts also saw their interest rates slide.

Meanwhile, the biggest reserve currency in the world – the US dollar – has also been falling in value as concerns about a slowing economy and Trump’s economic policy shake investor confidence. And, needless to say, those worries haven’t been great for the stock market. Big Tech companies have seen their shares grinding lower, as the two-year-old bull market appears to be running out of steam. So that said, how can investors best get exposure to gold?

Let’s get to it then: how to buy gold.

Gold specialist funds or an exchange-traded commodity (ETC) can give you exposure to gold.

ETCs track the price of a single commodity or a basket of commodities. For a gold ETC, the aim is to provide a return in line with the gold price, minus its fund fee, which is typically very low. Therefore, an ETC offers a low-cost way to invest directly in gold without having to pay for storage or security.

Options include the SPDR Gold Shares (ticker: GLD; expense ratio: 0.4%), iShares Gold Trust (IAU; 0.12%), or the VanEck Merk Gold Trust (OUNZ; 0.25%). In the UK, you could opt for the iShares Physical Gold ETC GBP (SGLN), Invesco Physical Gold ETC GBP (SGLP), WisdomTree Physical Swiss Gold ETC GBP (SGBX), or the Royal Mint Rspnsbly Srcd Physcl Gld ETC GBP RMAP. The iShares Physical Gold ETC, meanwhile, hedges the currency, so fluctuations in the pound/dollar exchange rate don’t impact performance.

To gain exposure to the industry as a whole, you can invest in global gold mining firms, via the VanEck Gold Miners ETF – GDX (0.51%) for US investors and GDGB for UK investors.

Be wary of leveraged gold and silver ETFs: they tend to be high-risk and can incur huge losses if the market goes the wrong way.

Active funds that have large positions in gold – those managed by fund managers that attempt to beat a comparable index – include BlackRock World Mining Trust, Jupiter Gold and Silver, and WS Amati Strategic Metals B.

If you’re confident enough to pick individual gold mining stocks yourself, there are plenty of giants out there and plenty of small-cap mining companies. Just be aware that they could carry higher risk, given the nature of the industry. Each mine has different economics, deposit sizes, production costs, and mine life. There’s also geographical risk, where possible local or regional conflicts can flare up, and where navigating processes, laws, and local customs can make it harder to get a mine off the ground let alone to profitability. For explorers, it can take many years from identifying a deposit to getting any gold out of the ground and generating an income.

If you decide you just want to get your hands on the yellow metal itself and own physical gold, some established dealers will send you bars and coins through the mail.