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Why are investors flocking to gold?
Throughout the ages, gold has served as a safe haven during times of political and economic instability. Its status as a highly valuable and reliable commodity, easily transported and sold anywhere, provides a sense of security in times of turmoil.
Despite its prestigious status as a safe haven, not all investors are fond of gold. Prominent among these is Warren Buffett, a renowned investor known for his financial and investment acumen. He described gold as a "sterile asset" in a 2011 letter to Berkshire Hathaway shareholders.
However, contrary to this view, investors flocked to gold bullion amid the escalating trade war during US President Donald Trump's second term, fears of US debt reaching record levels, and growing concerns about the independence of the US Federal Reserve.
According to a report by Bloomberg, this year saw significant investor interest in gold-backed exchange-traded funds (ETFs), with their total holdings of the precious metal reaching a three-year high in September 2025. This strong demand drove the price of gold to record highs in 2025, continuing the sharp upward trend that began in 2024.
During trading on October 2, 2025, gold futures for December delivery surpassed $3,900 per ounce for the first time in history, following the failure of US lawmakers to reach an agreement on federal funding, leading to the first government shutdown in nearly seven years.
Why is gold considered a safe haven?
Gold is considered a safe haven for modern investors primarily due to its stability and liquidity, rather than any intrinsic benefit. Gold has a long history of appreciating during periods of market turmoil and is viewed as a hedge against inflation when the purchasing power of currencies erodes.
Gold typically becomes more attractive in a low interest rate environment, and markets reacted positively to the US Federal Reserve's quarter-point interest rate cut on September 17, 2025. However, Trump's continued pressure on the Fed to cut interest rates further contributed to bullion prices rising in anticipation of further monetary easing from the central bank.
Gold's safe-haven status also increased as confidence in other safe havens, particularly the US dollar and government bonds, declined. Gold typically moves inversely to the dollar, and since its price is set in dollars, a weaker US currency makes it cheaper for holders of other currencies. The US dollar fell to its lowest level in more than three years against other major currencies in mid-September.
Aside from market volatility, gold ownership is deeply rooted in Indian and Chinese culture, two of the world's largest markets for the metal. Jewelry, bullion, and other trinkets are passed down through generations as a symbol of prosperity and security. According to Bloomberg, Indian households own approximately 25,000 metric tons of gold, more than five times the amount stored at Fort Knox, which houses nearly half of the US Treasury's gold reserves.
What drove gold's rally before Trump's return?
The massive surge in gold prices dates back to early 2024, before Trump's return to power. This surge was driven by massive buying by central banks, particularly in emerging markets, seeking to reduce their dependence on the US dollar, the world's primary reserve currency. Gold helps diversify countries' foreign exchange reserves and protects them from currency devaluation.
Central banks have been net buyers of gold for the past 15 years, but their buying accelerated after the Russia-Ukraine war. The freezing of Russian Central Bank funds held in their countries by the United States and its allies has highlighted the extent to which foreign exchange assets are affected by sanctions.
Data from the World Gold Council shows that central banks worldwide purchased more than 1,000 tons of bullion in 2024, for the third consecutive year, making them owners of nearly one-fifth of all gold mined.
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