The Golden Rule: He Who Has the Gold Makes the Rules

Investors often turn to gold as a safe haven during times of economic instability or geopolitical tension. Shutterstock

“O Gold! I still prefer thee unto paper, which makes bank credit like a bark of vapor.”—Lord Byron

NEWS FLASH: Gold prices hit a record high in March, breaking the critical $3,000 barrier. That’s almost double what they were at the start of this decade.

Introduction

The rise in prices comes amid escalating Middle East tensions and fears of a global trade war, along with weakness in the U.S. dollar.

What is the backdrop to account for the gold price surge? While we can make a list, and will do so in this article, most likely it is a combination of these factors, along with other elements, that is fueling this frenzy. Gold’s unique role as both a commodity and a financial asset makes it sensitive to these dynamics.

Let’s take a look at the most cited factors behind surging gold prices. These major impacting variables are expected to drive gold prices up even beyond today’s record price.

Economic Uncertainty

Investors often turn to gold as a safe haven in times of economic instability or geopolitical tension. Wars, conflicts, and the threat of ever-changing tariffs create economic uncertainty, driving gold prices higher. When geopolitical tensions escalate, investors turn to assets that they think will maintain value regardless of and independent of currency fluctuations and political instability.

Central Bank Policies

Increased gold purchases by central banks, especially after events like the Ukraine–Russia war, boosted demand for gold. When central banks lowered interest rates following the Great Financial Crisis, gold became more attractive because it doesn’t yield interest.

Quantitative easing (injecting money into the economy) can weaken a currency, shifting interest toward gold as a hedge against inflation.

Banks are buying gold as a policy to diversify their reserves, and this has the effect of pushing up gold prices. Central bank gold purchases are likely the strongest factor that has led to higher and higher gold prices recently.

Inflation Concerns

Rising inflation rates make gold an attractive asset to hedge against currency devaluation. Inflation is an unavoidable part of the economic cycle, so finding investments that can weather or counter inflation, or hedge the inflation financial impact, or benefit financially despite inflation, is prudent. Whether you choose physical gold, ETFs, or mining stocks, seek to align your strategy to protect your financial future.

Weaker US Dollar

A declining U.S. dollar makes gold an appealing alternative store of value. A weakening dollar results in higher gold prices because gold is typically priced in U.S. dollars on global markets. When the dollar weakens, gold becomes cheaper for non-dollar buyers, leading to increased demand. On the other hand, when the U.S. dollar strengthens, gold prices can often decline.

Retail Demand

Retail investors, particularly in countries like China, are increasingly buying gold due to an increasing cultural skepticism toward traditional financial assets.

Retail demand for gold is strongest in Asia, where it is likely to be robust due to higher growth.

Gold Investments in 2025

Physical gold: Tangible and immune to counterparty risk. Examples are gold bars, coins, and jewelry.

Gold ETFs: Easy to trade and track market prices without the cost and hassle of physical storage. Examples are SPDR Gold Shares (GLD) and iShares Gold Trust (IAU). A significant amount of new investment is coming into gold ETFs: holdings are up approximately 5 million ounces since the beginning of this year. February 2025 saw new purchases of more than 3 million ounces, the largest monthly increase since 2020. Passive fund interest has been especially strong in China, where buying is up 15 percent since the start of the year and has almost tripled in the past two years.

Gold mining stocks: There is potential for higher returns on stocks if gold prices surge. Examples are Barrick Gold and Newmont Corporation. Gold mining stocks are showing some promise so far in 2025, driven by increasing gold prices in 2024, which ramped up 26 percent.

Digital gold: Not to be confused with cryptocurrency—combines digital access convenience with the long-term stability of gold. Digital gold, in which investors purchase fractional shares of gold bullion that are then stored in a secure facility off-site, emerged during the digital revolution in the increasingly popular gold market. Investors may hold gold without the need for a physical safe or bank safety deposit box.

One of the touted benefits of buying digital gold is that it reduces issues of purity, storage, and security because these aspects are assured. But it also comes with potential risks such as fraud, market risk, expenses, redemption restrictions, and tax repercussions.

Other Investing Choices

The enthusiasm for gold could finally spill over into other precious metals, such as silver and platinum.

Precious metals generally move like synchronized swimmers, going up or down together. Gold has outpaced silver and platinum, but many investors may conclude that they’re poised to follow the leader.

Gold mining stocks have not kept pace with the metal, so you might consider these as potential investing choices and a relative bargain.

Risks and Downsides

Finally, be sure you have taken into consideration the investing risks and downsides of gold. Gold prices can fluctuate significantly because of changing geopolitical events, currency values, and market demand.

Unlike stocks or bonds, gold doesn’t generate dividends or interest. Its investment value is solely tied to its price appreciation. Gold is often considered a “safe haven,” but it may underperform during periods of strong economic growth when investors favor higher-yielding assets.

Physical gold, such as bars or coins, requires secure storage, which can be costly and cumbersome. Even secure lockups can’t always prevent theft.

Although gold is considered a liquid asset, selling your physical gold may require finding a buyer, and you might be required to take an unforeseen and surprisingly large discount to the gold spot market price, depending on how or where you sell your gold.

Gold prices, like crypto, can be driven by speculation, making gold vulnerable to sudden and unpredictable changes as the market shifts—sometimes out of greed but perhaps more often out of fear.

The recommended amount of gold to keep in your portfolio varies from 5 percent to 20 percent, and is advised for diversification purposes. The investment you choose will be influenced by your personal risk tolerance, financial goals, and the market conditions.

Summing Up

Gold has its naysayers. “We will answer their demand for a gold standard by saying to them: ‘You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold!’” William Jennings Bryan, an advocate for bimetalism, a money supply based on gold and silver, brought down the house with his Cross of Gold Speech in 1896.

However, as trade wars expand, sticky inflation persists, central banks continue buying, and China’s financial markets continue buying at an unprecedented scale, the case for higher gold prices in the future is compelling.

“Gold is money. Everything else is credit.”—J. P. Morgan

The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.