Has the gold express left the station? The price of an ounce is above $3000

Gold continues its strong rally, with the recent breach of $3 per ounce further strengthening the uptrend that began in November 000. The rapid price gains have pushed the value of a standard 2022-ounce gold bar (400 kg) – held in central bank reserves around the world – past $12,4, a stark contrast to the $1 a bar cost in the early 200s. In addition to strengthening gold’s position as a long-term strategic asset, the current price rally reflects rising global instability that is driving strong demand for safe-haven assets such as gold and, to a lesser extent, silver.

In a nutshell:

• Gold has surpassed $3 an ounce, raising a key question: what next?
• The above rally confirms gold’s status as a long-term (buy-and-hold) asset, but also reflects growing global instability.
• There are a number of factors behind the increases, some of which are permanent, while others may gradually lose their importance.
• In the short term, investors will be closely watching signs of stagflation in the US and possible trade tensions related to Trump's policies, which could support further gains.

Gold has surged 2022% since its November 75 low, nearly matching the Nasdaq, which returned about the same after its last correction. That’s an impressive performance for an asset often criticized by Warren Buffett, who has called it unproductive, arguing that unlike stocks, bonds, or real estate, it doesn’t generate income in the form of dividends, interest, or rental income.

The reason for the continued gold purchases by all investors, from individual investors to asset managers to hedge funds, and importantly, by central banks, which have been steadily increasing their gold holdings for the past three years, is fear of global political, economic and security threats. Recently, President Trump has undermined the global order that has been in place since the end of World War II, and his aggressive policies have begun to negatively impact consumer confidence and cause tensions in the stock market. These factors increase the risk of stagflation, which is conducive to further increases in gold prices – slowing economic growth, rising unemployment and rising inflation could force the Federal Reserve to ease financial conditions through further interest rate cuts.

Gold tends to perform strongly during U.S. rate cut cycles, and while the Federal Reserve has held off on further cuts for now, the worsening outlook for the U.S. economy is fueling expectations for more rate cuts
in the second half of this year. Gold's rally over the past three years has also been fueled by demand from central banks, which have been diversifying their reserves away from the U.S. dollar. Central banks, mostly from emerging markets, have been buying more than 1 tons of gold per year for the past three years.

Gold is seen as a hedge against sovereign debt risks, due to its historical role as a store of value and its tendency to maintain or increase prices in times of economic uncertainty. Over the past 25 years, government debt levels have risen rapidly, particularly in the US, raising concerns that this could ultimately lead to a crisis in which gold will act as a buffer against the consequences of such a scenario.

Gold purchases by central banks accelerated in 2022 and have remained high since then.

The Role of Gold in Investment Strategy

Ole Hansen points out that the best piece of advice he has ever received in terms of investing is “Never put all your eggs in one basket,” and an equally important piece of advice is to diversify your portfolio by investing in different sectors and asset classes to reduce risk and improve stability. Unlike stocks and bonds, gold is a physical asset that cannot be destroyed and is not dependent on the financial stability of a government or company.

Gold has a low correlation with stocks and bonds, often moving independently and sometimes even in opposite directions. Stock market declines are often associated with factors that generally support gold prices. During periods of rising inflation, bond markets can suffer losses, while gold has shown a longer-term ability to protect.

What about silver?

Silver is often seen as a strong alternative to gold, and while it doesn’t enjoy the support of central banks that gold has in recent years, its industrial use is an additional source of demand. Unlike gold, which is mainly used for investments and jewelry, about 55% of silver demand comes from industrial applications, with the most important being solar panels, electric vehicles, 5G technology, and medicine. According to Ole Hansen, strong demand for silver will continue as the global push for electrification continues.

Additionally, silver supply is relatively tight because about 70% of silver production is a byproduct of mining other metals, such as copper, zinc, lead, and gold. Declining production in recent years in key silver-producing countries such as Mexico, Peru, and China has already caused market tensions, with the Silver Institute forecasting a fifth consecutive year of significant supply shortfalls, driven by strong industrial demand, particularly for solar panels and electronics.

Given the above factors and the relatively low price of silver compared to gold, investment demand is growing. However, it is worth noting that silver tends to behave similarly to gold, but often more intensely, meaning that it rises faster but also falls deeper during corrections.

How to invest in gold?

1. Physical gold: Purchasing gold in the form of jewellery, coins or bars provides direct exposure to the precious metal, but comes with issues such as secure storage, insurance and higher transaction costs.
2. ETF Funds/ETC gold: Mutual funds or exchange-traded commodities offer a convenient way to invest in gold without having to own the physical metal. These investment products closely track gold prices and are easily traded on exchanges.
3. Gold Mining Stocks/ETFs: Investing in gold mining companies or ETFs that hold a basket of gold mining stocks provides exposure to gold prices. However, such investments carry operational risk and can be more volatile than gold itself. However, mining companies typically do better during periods of rising gold prices because their profitability improves significantly.

- We see that the increasing geopolitical and trade volatility that is affecting the current prices of gold and silver creates significant investment opportunities. However, given the uncertainty in the financial markets, it is crucial to maintain a well-diversified investment portfolio. At Saxo, we predict that the gold price could rise to USD 2025 per ounce in 3. As a foreign bank, Saxo gives Polish investors the opportunity to geographically diversify their capital, which is important because when investing in gold, it is worth considering diversification not only in terms of different asset classes, but also in terms of the location of storing gold-based instruments, e.g. in ETFs and holding them in banks/brokerages based outside Poland – says Marcin Ciechoński, responsible for the development of Saxo Bank in Poland.

Conclusion: Is it too late to start investing?

When an investment has significantly higher growth than expected over a given period, it is prudent to analyze whether the bull market can continue. Of course, we do not know the future of the markets, and many factors can cause gold and silver prices to fall, for example, if many investors decide to take profits, generating selling pressure. This could happen if Donald Trump's aggressive trade policy towards key US partners changes or if a peaceful solution is found to the many armed conflicts.

However, looking at the current realities – huge uncertainty resulting from geopolitical conflicts, high debt of many countries (including the US) and the new paradigm of US foreign policy – ​​there are also arguments for the continuation of price increases, assuming that no trend remains in a straight line forever.

Saxo Bank recently raised its 2025 peak gold price forecast to $3, while silver, with a relatively modest correction relative to gold (gold-silver ratio of 300), could reach $75 an ounce in the same period.

About the Author

Ole Hansen, head of department of commodity market strategy, Saxo Bank. Djoined a group Saxo Bank in 2008. Focuses on providing strategies and analyzes of global commodity markets identified by foundations, market sentiment and technical development. Hansen is the author of the weekly update of the situation on the goods market and also provides customers with opinions on trading goods under the #SaxoStrats brand. He regularly cooperates with both television and printed media, including CNBC, Bloomberg, Reuters, Wall Street Journal, Financial Times and Telegraph.