Gold’s unstoppable surge: what’s fueling the record-breaking rally?

Not long ago, gold was just another asset among several options for investors – steady, reliable, but not making headlines frequently.

Then, the world changed. Inflation surged, economies came under pressure, wars broke out, and uncertainty became normal. And the cherry on top – Donald Trump's re-election as U.S. president.

With uncertainty gripping global markets, investors seeking refuge have turned to the one asset that has stood the test of time - gold - which is now smashing records, surpassing $2,900 per ounce, and showing no signs of slowing down.

Gold delivered its strongest yearly performance in over 10 years, soaring 26% in 2024 and outpacing stocks, bonds, and commodities. The precious metal’s rally underscored its appeal as a safe-haven asset amid market volatility and shifting economic conditions.

What’s really fueling this rally? Nuktabreaks it down.

Central banks stockpiling gold

A powerful mix of central bank buying, robust Asian investment, and growing Western inflows is driving gold’s surge. Nations, including China and India, are aggressively stockpiling gold to lessen reliance on the U.S. dollar, tightening supply and increasing prices.

Adding to the momentum, geopolitical risks, a packed election cycle, and the start of global rate-cutting cycles have further bolstered gold’s safe-haven appeal. While consumer demand has cooled, strong investor buying continues to offset the slowdown, keeping gold firmly in the spotlight.

The ultimate safe haven

Gold is in the spotlight as global troubles push investors to seek safe havens. With rising tensions, and trade disputes, many are buying gold – either in physical form or through ETFs – to protect their money. The growing demand is driving prices higher, reinforcing gold’s role as a trusted safe haven.

In Pakistan, gold has consistently outshined other asset classes, largely because its low correlation makes it a standout diversifier in any portfolio.

Speculation and FOMO

With gold reaching record highs, investors and traders are piling in. The fear of missing out (FOMO) is accelerating gold’s momentum, as institutions and retail traders alike flock to gold-backed ETFs and futures.

Trade war fears

All eyes are on Trump's second term as tariffs ramp up. The US has imposed 25% tariffs on Canadian and Mexican imports – with an extra 10% on Canadian energy – and hiked Chinese tariffs to 20% from 10%. Retaliatory measures from Canada and Mexico are fueling fears of a large-scale trade war, sending investors scrambling to gold as safe haven.

“Due to the rising economic uncertainty in the world, the price of gold is experiencing a bullish run. In the times of crisis, gold and dollar are both treated as safe havens. As such, if there are further sanctions and retaliation from countries, gold prices will rise higher,” Syed Muhammad Osama Rizvi, energy analyst and columnist at illuminem, said.

Amid rising tensions, about 8,000 gold bars were recently moved from the Bank of England to the U.S., underscoring global uncertainty.

Inflation and interest rates

As inflation rises, traditional currencies lose value, but gold retains its purchasing power.

Concerns that tariffs could spur inflation while stalling growth – raising stagflation risks – are driving investors toward gold as both an inflation hedge and a safe haven.

Earlier this year, regional Fed governors reaffirmed a cautious approach, citing slow progress in bringing inflation down to the 2% target.

The power of the U.S. dollar

Gold is priced in U.S. dollars, meaning a weaker dollar makes gold more affordable for international buyers. As a result, global demand continues to push prices higher.

According to recent statistics, the dollar index has declined by 1.8% so far this calendar year, providing substantial support for gold's upward movement.

How high can gold go?

Four key forces will shape gold’s performance: the global economy’s health, investor risk appetite, interest rates, and overall market momentum. While current macro forecasts suggest a modest year ahead, markets rarely follow the script.

Gold could outperform if central bank demand exceeds expectations or financial conditions deteriorate, leading to flight-to-quality flows (a shift from riskier assets to gold). Some global analysts see prices crossing $3,000 soon, fueled by economic uncertainty, rate cuts, inflation fears, and relentless central bank buying.

With gold’s safe-haven appeal intact, the rally looks nowhere near over.