Is gold a timeless safe haven or an overheated asset? With prices flirting with record highs and predictions of $3,000 – even $5,000 – per ounce, investors are grappling with whether gold still offers protection, or if they’re buying into a bubble. In this deep dive, we explore the forces driving gold’s surge.
Download PDF VersionGold has long been regarded as a store of value, a hedge against inflation, and a safe haven during times of economic and geopolitical uncertainty.
With gold prices already approaching record highs and some analysts predicting a move beyond $3,000, potentially reaching $5,000, investors are increasingly debating whether gold remains an attractive asset class or whether buying at current levels poses a risk. At the time of writing this article the price was $2,913 per oz (6 March 2025).
While gold’s role in a diversified investment portfolio is well understood, key questions remain. Is gold poised for further gains, or are investors chasing an overvalued asset? And how should investors incorporate it into their portfolios given its advantages and drawbacks?
Inflation hedge & store of value
Gold has historically performed well in high-inflation environments, acting as a hedge when the value of fiat currencies declines. Persistent inflation and the likelihood that central banks will maintain higher interest rates for longer have reinforced gold’s appeal. While real yields remain positive, uncertainty about future monetary policy and concerns over excessive government debt bolster the case for gold as a store of value.
Central bank demand & de-dollarisation trends
A key factor driving gold prices higher is central bank demand, particularly from countries looking to reduce their reliance on the U.S. dollar. Nations like China, Russia, and various Middle Eastern economies have been increasing their gold reserves, potentially signalling a broader shift away from the dominance of the U.S. dollar in global trade. This movement toward gold-backed reserves, whether intentional or coincidental, has created significant buying pressure.
Geopolitical uncertainty & market instability
Periods of geopolitical tension, economic instability, and financial market volatility have historically led investors to seek refuge in gold. From wars and trade conflicts to banking crises, gold has been a beneficiary of uncertainty. With rising geopolitical risks, including tensions in the Ukraine and the Middle East, and concerns over economic slowdowns in key global economies, investors have turned to gold as a form of insurance.
Technical & momentum-based buying
Beyond fundamental drivers, gold is also benefiting from strong price momentum. As prices climb, institutional investors and trend-following traders may further fuel the rally.
With gold already breaking through previous resistance levels, continued upward momentum could push prices significantly higher, especially if sentiment remains bullish.
While the case for gold remains compelling, there are valid concerns about whether investors are chasing the asset at unsustainable levels.
Is gold already overvalued?
Gold prices have already seen significant gains, and history suggests that periods of sharp increases are often followed by corrections. Investors must consider whether they are entering at a point where the risk-reward balance is less favourable. If economic conditions improve or inflation fears subside, demand for gold could weaken, leading to price declines.
Opportunity cost of holding gold
Unlike equities or bonds, gold does not generate income. There are no dividends or yields, meaning investors rely purely on price appreciation for returns. In a high-interest-rate environment, the opportunity cost of holding gold rises, as investors could potentially earn attractive yields from fixed-income assets. If inflation moderates and interest rates remain elevated, gold may struggle to compete with income-generating assets.
Storage & liquidity challenges
Owning physical gold comes with logistical challenges. Secure storage, insurance, and potential liquidity concerns make it less convenient than holding other financial assets.
Gold ETFs offer an easier way to gain exposure, but they introduce counterparty risk, as investors do not physically hold the metal.
Potential policy risks & speculative buying
If gold prices continue to climb, governments and regulators may take a closer look at the asset class. Historically, extreme price surges have been followed by interventionist policies. Additionally, speculative buying at elevated levels may lead to a price bubble, which, if it bursts, could result in sharp declines.
Given these factors, how should investors incorporate gold into a diversified portfolio? How much gold is too much?
A reasonable allocation at present to gold typically ranges between 5%-10% of a diversified portfolio. This provides downside protection without overexposing the investor to its price volatility. While some investors may choose to go beyond this, higher allocations introduce concentration risk and the potential for underperformance if gold prices stagnate or decline.
Hugh Mitchell | Senior Portfolio Manager at Nevastar Finance Ltd
"We are invested in gold for our clients even at high current prices. We expect gold to continue to benefit from strong central bank demand, investor safe haven positioning, and the rumoured creation of a US sovereign wealth fund."
Nick Duffy | Investment Manager at LGT Wealth Management UK LLP
Gold’s long-term outlook remains strong despite being technically overbought. Central banks in the developing world are increasing reserves in response to the US dollar’s weaponization, while China’s push to de-dollarize Asia and back the RMB with gold is significant. Meanwhile, Western portfolios remain underweight in gold despite its outperformance and role as a hedge against inflation and uncertainty. Its rising value across currencies and strong performance against equities further reinforce its strategic importance.”
There are several ways for investors to gain exposure to gold:
Trying to time the market with gold can be difficult. Instead of making a large allocation at once, investors may consider a phased approach—gradually increasing their exposure over time to avoid buying at a peak.
For international investors, gold can also serve as a hedge against currency depreciation. If local currencies weaken against the dollar, gold priced in those currencies may perform even better.
Gold remains a compelling asset in today’s investment landscape, offering a hedge against inflation, geopolitical risk, and market uncertainty. However, investors must weigh the risks of entering at elevated prices and consider whether alternative assets may offer better returns.
Rather than viewing gold as a short-term speculation, investors should see it as part of a broader portfolio strategy—one that balances growth, income, and protection against uncertainty.
With the right allocation and investment approach, gold can continue to play a valuable role in wealth preservation and diversification. To explore how it can fit into your strategy, please get in touch for more information.
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