Why is the price of gold so high?

Author: Tom Bull

Gold surged above $4000 per ounce for the first time on the 8^th October and, at the time of writing, has surpassed that to $4,112.26, according to the Royal Mint. This begs the question: Why is the price of gold so high at the moment? This article delves into the historical reasons for a surge in the price of gold, whether these reasons are relevant today, and whether gold will continue to appreciate in value. 

Historically, the price of gold has increased in times of economic uncertainty or during times of high inflation. For example, when adjusting for inflation, the previous highest price of gold occurred in 1980 when the price reached $3,400 per ounce (in 2025 dollars), a record which went unbroken until this month. The price in 1980 was owed to myriad reasons, including high US inflation during the late 1970s, international crises, and economic instability. The story today is largely the same albeit with some additional factors. Gold often performs well during times of economic uncertainty. It is viewed as a hedge against currency’s diminishing value by investors. The reason for this is that, while the relationship between the price of gold and inflation is not always directly correlated, gold tends to hold its value in a way that money does not. A major reason is that gold cannot simply be printed as money can be; it is a finite resource. 

The recent political turmoil in the United States is one of the central drivers of gold’s recent upsurge in value. As noted before, gold has a tendency to increase in value during times of economic and political turmoil and the United States has certainly had its fair share of turmoil since Trump’s inauguration on 20^th January 2025. The first surge in gold price began during Trump’s ‘Liberation day’ where the President rolled out tariffs on nearly every single country in the world, including a base tariff of 10% on every import into the United States and 50% tariffs on Lesotho and the sparsely populated French archipelago Saint Pierre and Miquelon. This massive tariff scheme led to a vicious trade war between China and the United States and tariffs of 145% being imposed by the United States on China and 125% by China on the United States, leading to an estimated 0.2% decrease in global trade while active. This trade war and the general disruption in global trade that resulted from these tariffs led to the first dramatic increase in the price of gold during April. 

The second upsurge in the price of gold has occurred since late August. Gold began this spike as markets speculated that the Fed would lower interest rates in September in order to counter the weakening job market and after significant pressure from the President who had been on a campaign to get Jerome Powell, the Chair of the Federal Reserve, fired and who attempted to get Lisa Cook, the governor of the Federal Reserve, ousted in his attempt to get interest rates cut. As expected, the Fed cut interest rates to a target between 4.00-4.25% from 4.25-2.50% on 17^th September, though not as much as Trump would have wanted. Since a cut in interest rates generally leads to increased inflation, for reasons outlined above, there was an increase in the price of gold from the market throughout late August and September. 

The final dramatic push in gold’s value occurred when the US government shut down on 1^st October which is still ongoing. The reason for this shutdown is Republicans and Democrats in Congress failed to pass a bill funding government expenditures after the federal budget expired and, while Republicans have a majority in Congress at the moment, the budget needs 60 votes in the Senate to pass. Essentially, a government shutdown means increased uncertainty in a time where uncertainty is already high. A shutdown translates in real terms to a standstill in government services, notably the publishing of economic data. This all adds to the already high uncertainty, thus adding to the pile of people already buying gold for its safe-haven properties. 

While the erratic policy coming out of the United States this year led to the dramatic and sharp increases in the price of gold recently, another less obvious cause of gold’s increased value is countries, such as China, India, Poland, Turkey and Azerbaijan, beginning to replace the US dollar as their reserve currency with increased gold reserves. Central banks, according to the BBC, have bought in excess of 1,000 tonnes of gold every year since 2022, an increase of nearly 500 tonnes a year during the 2010s. The reasons for this recent hoarding of gold by some of the largest countries in the world mirrors those other reasons in the private sector for gold’s increase in value. A distinct reason for central banks buying gold is the freezing and potential outright seizing of Russian assets to help Ukraine in its fight for independence against Russia. This fact has caused nations not necessarily aligned with the West to seek out gold as protection against western seizure. 

Can we expect the price of gold to increase further? Possibly increasing economic uncertainty, continued trade wars (recently reignited after the US expanded its ‘Entity List’ limiting Chinese access to semiconductor chips and China added restrictions on rare earth metal exports), governments continuing to increase their gold reserves, and Trump’s continued efforts to control the Fed all point to gold increasing. 

However, correlation is not always causation and this time may be different to last time. Moreover, gold is likely to fall once the US government shutdown ends and, as seen after the record price in 1980 and after the 2008 financial crisis, the price of gold can fall just as fast as it rises. Historically, dramatic increases in the price of gold have decreased equally sharply and, while it may be different this time, it is unlikely that these record prices will last forever.