Gold once again took center stage on the global financial scene. After exceeding US$4,000 per ounce for the first time, the precious metal is going through its best year since the 1970s and is consolidating itself as the most sensitive thermometer of the world economy.. Its rise does not respond to a single factor, but to a combination of elements ranging from the expectation of lower interest rates to an increasingly unstable geopolitical environment and growing distrust about the fiscal sustainability of the main powers.
Lower rates and the end of the restrictive cycle. The first driver of the rally is monetary policy. After several years of tightening, the United States Federal Reserve began to prepare the ground for a series of rate cuts, a signal that markets interpret as the end of the restrictive cycle that began after the pandemic.
In futures markets, the odds of at least two additional cuts in the remainder of the year exceed 90%. In practical terms, this means that North American debt is expected to pay less interest, which reduces the opportunity cost of holding non-interest-bearing assets, such as gold. Consequently, capital flows have shifted from bonds and deposits to the metal, driving its price to record levels.
World economy, indebted and fragile. The second big force behind the rebound is the perception that the global economy faces long-term structural problems. In the United States, the fiscal deficit reaches levels not seen since World War II. President Donald Trump’s attempts to influence monetary policy—even attempting to oust members of the Federal Reserve—are fueling the sense that the country could enter a period of “fiscal dominance”in which the decisions of the Federal Reserve are subordinated to the financing needs of the Treasury.
That prospect worries investors. A scenario of high debt, artificially low rates and political pressure on central banks is reminiscent of the 1970s, when the abandonment of the gold standard and Nixon’s expansionary policies triggered inflation and multiplied the price of the metal. In this context, many seek refuge in assets with intrinsic value, that is, those whose price does not depend on the solvency of an issuer or confidence in a currency. Gold, which does not need intermediaries or promises of payment, reappears as the refuge par excellence: an asset that maintains its value when the rest of the system seems to collapse.
Geopolitical tensions. The other great fuel for the rally comes from the geopolitical world. Simultaneous conflicts in Ukraine and the Middle East, trade tensions between the United States and China, and political instability in Europe have raised the global level of risk. Each episode of tension or diplomatic breakup translates into new purchases of gold, both by private investors and central banks.
In this sense, metal has recovered its ancestral function as a neutral and apolitical asset. In a scenario in which confidence in the dollar as a reserve currency is weakening, the central banks of emerging economies – from China and Türkiye to Poland and India – have accelerated their purchases. YesAccording to official data, annual purchases exceed 1,000 tons from 2022, double the average of the previous decade.
A refuge that is once again the protagonist. The renewed prominence of gold goes beyond economic fundamentals: it reflects a crisis of confidence in the traditional pillars of the financial system. In a world with weakened currencies, record debt and rising political tensions, gold reappears as the only asset that does not depend on the promise of any government.
Unlike the dollar or bonds, gold cannot be issued or manipulated. It is tangible, universal and unrelated to the volatility of politics or financial markets. That quality explains why investors—from central banks to individuals—are accumulating it as the ultimate store of value.
In a world scenario dominated by uncertainty, the brilliance of gold is not only financial: it is the reflection of a search for security that transcends all types of investors.
*Director of Ingeco Argentina and Stock Broker in the US.
by Sergio Rodríguez Glowinski
