Gold performance has developed momentum but is that sustainable? Where are we now and where lies gold’s true value? History shows that gold is not the safe haven, says Ian Rees, Head of Multi Manager Funds, Premier Miton Investors.
Gold has recently breached $4,000 oz for the first time, rewarding investors with a return of more than 120% since October 2023[1], its strongest rally since 1979. Performance has even outpaced the near 80%[2] rise of the Magnificent 7, since early 2024 despite the enthusiasm around AI over that period.
The main cause of gold’s spectacular run is namely greater interest in its role as an investment haven by investors. The rationale for such a move is supported by a perfect storm of events, starting with an inflation backdrop that has remained sticky on both sides of the Atlantic. With gold historically seen as a long-term inflation hedge, this has promoted gold as an alternative to long dated government bonds which are more vulnerable to the inflation backdrop.
Gold has also demonstrated defensive characteristics at times of geopolitical risk, especially war. With global tensions and conflict having featured heavily in the daily news flow in recent years, this has also been a support.
The more recent run-up in the gold price probably owes more to US policy credibility being brought into question this year, given the volatile approach to tariff deals and an ‘America first’ US foreign policy. There have also been market concerns regarding the actions of President Trump in demanding lower rates and seeking to challenge the independence of the US central bank in setting monetary policy. Combined with the concerns of inflation creating a fear of debasement for the US Dollar, this has seen the mighty Dollar lose some of its shine this year, while gold has positively shone as an alternative fiat currency hedge for investors.
During September we saw the US deliver their first rate cut of 2025 while signalling that further rate cuts lie ahead. This is another boost to the narrative supporting gold given the lower opportunity cost of owning gold (a non-income paying asset). In reaching their decision, the US Federal Reserve has emphasised the lack of clarity on the economic outlook, requiring them to remain data dependent for their decision making. This makes the current suspension of official economic data following the US government shutdown cause for greater uncertainty.
With this backdrop and having performed as strongly as it has, the big question is whether performance can be sustained? This is a consideration for those already invested as much as it is for those who have not yet bought-in and are suffering from a fear of missing out.
To begin to answer this question, it is worth remembering that gold is a non-productive asset which does not generate any revenues or income that can be evaluated against its cost or return from other assets. Without an intrinsic value, investors should regard any predictions of the gold price with a low degree of confidence. Also, gold remains an asset that has exhibited considerable price volatility over elongated cycles. In my early career as a private client manager, management agreements would frequently exclude commodity assets such as gold. The reason for this stemmed from the experience of gold investors losing a significant amount of their wealth over a 20yr period from 1980 until 2000.
Recent acceleration of the gold price has been ahead of technical analysis trends, with reports of mania buying in some places. This should suggest investors ought to be careful. That said, the investment law of performance momentum attracting a greater number of investors which sustains the trend, is where we may be at now. Investors may chase gold directly but can also do so through indirect strategies such as managed futures or trend funds that have been boosted by golds’ recent gains. With Exchange Traded Commodity Funds evidencing a recent uptick in flows, I suspect that current gold momentum could still be within its infancy.
What may take the shine off gold as a diversifier?
We should not expect too much change to central bank buying, while investors are more likely to be swayed by any change to the economic and political backdrop affecting the appeal for gold as a diversifier. This might be a result of rebuilt confidence in monetary policy independence, fiscal credibility concerns easing, inflation threats being tamed, more clarity on the economic and corporate outlook, greater confidence in a rising US Dollar, and political or geopolitical events being more benign.
In today’s geopolitical and economic environment, the argument for wanting to own gold as a diversifier within our ‘alternative’ allocation has been compelling. For us, gold provides its utility as a portfolio asset, rather than being held with conviction to a false price expectation. In this case, we are less driven by the return it could make in preference to its role as a diversifier. If gold was to reverse from recent highs, this is likely to be a result of a reduction in referenced risks. In that scenario we would expect performance of other assets and allocations within a portfolio to perform much better. In this sense, the rationale for us to maintain a gold position is to provide a ‘hedge’ to uncertainty.
In summary, I would characterise the gold rally not as a ‘flight to safety’, but more of a case of fleeing an increase in storm activity. Although gold is serving its purpose as a haven, it does not mean it is ‘safe’, especially if it becomes overwhelmed by a deluge of tourist investors.
[1] Source: FE fundinfo, data based on Invesco Physical Gold ETC A USD in US from 05.10.2023 to 09.10.2025
[2] Source: FE fundinfo, data based on Roundhill Magnificent Seven ETF USD TR in US on from 16.02.2024 to 09.10.2025
This information should not be relied upon by retail clients or investment professionals. The views provided are those of the author at the time of writing and do not constitute advice. These views are subject to change and do not necessarily reflect the views of Premier Miton Investors.
Main image: scottsdale-mint-XHikIfxVZdY-unsplash
