A significant gold rally, driven primarily by increased demand from Chinese central banks and investors, has led to record high gold prices, with central banks buying over 1,000 tonnes annually in recent years. This shift is attributed to the diversification of reserve holdings away from the US dollar following geopolitical tensions and the imposition of sanctions by the US on Russia.

Western investors have largely been on the sidelines during this gold rally, with gold ETFs seeing monthly outflows and a lack of demand for bars and coins in traditionally strong markets like Germany.

Analyses suggest that gold’s price increase is disproportionate to its usual market drivers such as real rates on US Treasuries and dollar strength, likening its current market behaviour to that of cryptocurrencies rather than traditional commodities.

Some market strategists anticipate a potential sharp correction in gold prices due to its rapid rise, suggesting it is a risky investment at current levels. However, others believe there remains a cohort of investors ready to buy on any dips, particularly those who have not yet participated in the rally.

The sustainability of global debt levels, especially with rising interest rates affecting the US’s ability to manage its debt, is causing concern among some investors, who see gold as a safer bet against potential financial instability.

The gold rally is also seen as a reflection of broader economic shifts, including the erosion of the US dollar’s purchasing power, persistent inflation, and a move towards a multipolar global financial system.

Despite the surge in gold prices, western gold mining companies face challenges such as cost inflation and political risks in developing countries, with their equities undervalued compared to the broader market.

The disinterest in western gold mining equities among Chinese investors and funds is noted, with their current focus on domestic opportunities and other assets.

Some investors are exploring gold mining equities as an alternative investment, noting that the sector could offer significant returns if gold prices continue to remain high.

Challenges to the traditional status of gold as a safe haven are discussed, with volatility and long periods of stagnant or negative growth suggesting it should not constitute a major part of an investor’s portfolio. However, some suggest increasing the gold allocation in portfolios amid current economic uncertainties.