Gold has made headlines in recent months driven by its soaring value. Since the beginning of 2024, gold prices in GBP terms have climbed over 53%. In this week’s Brief, we explore the forces driving this remarkable rally.
While today’s generations often inherit wealth through financial assets or property, the passing down of gold, whether in the form of coins or jewellery, carries a symbolic and timeless value. For thousands of years, gold has been passed from one generation to the next, and that tradition continues today.
Historians estimate that gold has been used as currency for over 6,000 years, with early records of gold coins and trade spanning ancient civilizations such as China, Persia and Egypt. In the last century, the global financial system transitioned from the gold standard to a ‘fiat currency system’, i.e. currencies that are not backed by a tangible asset or commodity like gold. Under this framework, legal tender is established through trust in governments and the legal system. Still in effect to this day, currencies are now maintained by trust – whether in central banks, governments or broader financial systems. Despite this, gold remains a uniquely valuable asset.
What makes gold inherently valuable is its scarcity. According to the World Gold Council, only around 216,000 tonnes of gold have ever been mined, with just 3,500 tonnes added annually. This limited supply has helped gold maintain its status as a store of value across centuries. It has often served as a hedge during periods of inflation as its value typically appreciates during periods of rising prices, and it has tended to perform well during times of geopolitical or economic uncertainty.
Interestingly, only about 10% of mined gold is used in industrial or electronic applications. The vast majority is held in the form of jewellery, coins or bars – often stored in private and institutional vaults. Trade tensions, geopolitical instability and persistent inflation have contributed to the shift towards gold as a popular safe-haven asset. Recently, central banks have played a key role in driving up prices, especially in emerging markets, with the highest buying interest seen since 2022.1 Some of the largest buyers of gold last year included Poland, Turkey, India, Azerbaijan and China.
The imposition of sanctions on Russia by the USA and its Western allies following the Ukraine invasion prompted many emerging markets to reduce their reliance on US assets and boost their gold reserves instead, over fears that their assets could easily be seized in future. This is because, for those nations, the freezing of Russian-held US dollars and dollar-denominated assets highlighted the geopolitical vulnerability involved with holding large reserves in US dollars. As a result, traditional safe-havens – including the US dollar and US treasuries, but also the Swiss Franc and Japanese Yen – have slightly lost their appeal as certain countries seek to diversify their reserves and insulate themselves from a perceived risk of Western sanctions.
This move to diversify could be considered indicative of the so-called ‘de-dollarization’ effect – the concept that the US dollar is losing dominance as the world’s primary reserve currency – which was highlighted again most recently following Trump’s tariff announcements (learn more in our recent article here).
During the years 2000 to 2013, the Chinese government boosted its reserves through buying US treasuries, or US government bonds. However, in recent years this has reversed. Data released from the US Department of the Treasury shows that as of March 2025, China has slipped to being the third largest foreign holder of US treasuries.2 Japan remains the largest foreign holder, at $1.13 trillion, while the UK holds $779 billion, mainly as it acts as a custodian for many funds and other institutions. China’s share is diminishing, as the country now holds $765 billion. This is significantly lower than the peak of $1.3 trillion which China held in 2013.
Earlier this year, a significant divergence emerged between gold prices in London and New York, driven by fears of impending US tariffs on precious metals. We saw a surge in demand for physical gold in New York, where prices in the US traded at up to $60 per ounce higher than London's spot prices.
Many financial institutions and traders tried to take advantage of this arbitrage opportunity by transporting large quantities of gold from London to New York. However, logistical challenges arose due to differences in bar sizes – London's 400-ounce bars had to be recast into 100-ounce or 1kg bars to meet the US exchange’s specifications, causing bottlenecks in Swiss refineries. Consequently, London's gold reserves declined, and the Bank of England reported withdrawal delays extending up to eight weeks.
Although the US later excluded precious metals from the proposed tariffs, reducing the price premium, this episode highlighted vulnerabilities in the global gold market's supply chain and the impact of geopolitical uncertainties on commodity trading.
Some analysts believe the gold rally could continue, fuelled by sustained inflation and ongoing central bank demand. However, history reminds us that gold prices can retreat just as quickly as they rise – particularly if institutional and retail investors start to lock in profits after such a strong run.
The saying: “Old is gold, but gold never gets old” has never been truer. Gold continues to be the ultimate ageless asset, used by Pharaohs, hoarded by pirates and now chased by central banks.
[1] BBC: https://www.bbc.co.uk/news/articles/c5ygyjy7kz5o
[2] IDN Financials: https://www.idnfinancials.com/news/54743/uk-overtakes-china-as-second-largest-holder-of-us-debt
LGT Private Banking: https://auth-apigw-external-eu-pr.lgt.com/api/icm/files//2520sYrHKIS8VAuUlINphrhEleq9o8K8/attachment0
Reuters: https://www.reuters.com/markets/us/foreign-holdings-us-treasuries-top-9-trillion-march-data-shows-2025-05-16
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