April 25, 2025 • 9 mins
The price of gold has seen a blistering rally since Donald Trump's inauguration, as investors seek a safe haven from the policy and market turbulence. The precious metal has always been a draw during uncertain times, but this rush is driving prices to repeated record highs. Our metals reporter Jack Ryan joins host Stephen Carroll to discuss.
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and
this is Here's Why, where we take one new story
and explain it in just a few minutes with our
experts here at Bloomberg. In a world of increasingly complex
ways to invest your money, it's easy to forget that
(00:24):
one of the most trusted assets is still a metal
dug out of the ground.
Speaker 2 (00:29):
Gold continues to go from strength to strength once again,
all time records highs.
Speaker 3 (00:33):
Heading towards recession by some of this rock.
Speaker 1 (00:36):
Was it just gold for everyone?
Speaker 2 (00:38):
Yeah, it certainly seems that way.
Speaker 1 (00:40):
We see four things. Stocks go down, bonds go down,
the dollar goes down, and gold goes up. During the
market turbulence that's followed Donald Trump's return to the White House,
gold has shone more brightly than ever. Investors seeking refuge
from wild swings in stocks, bonds, and currencies have put
(01:00):
gold prices to record after records. Not everyone's a fan, though.
Here's legendary investor Warren Buffer speaking at Berkshire Hathaway's annual
meeting in two thousand and five.
Speaker 3 (01:11):
I don't see gold as a store of value. And
it's the truth is, it hasn't worked very well, turning
out about three or four thousand tons of gold a year.
And you know, we take it out of the ground
in South Africa and we put it in the ground
at Fort Knox or someplace New York, vin and it
doesn't do much along the way for anybody.
Speaker 1 (01:30):
And yet gold's appeal hasn't faded in the twenty years
since it's actually increased. Here's why investors can't get enough
of gold. Our precious metals reporter Jack Ryan joins me
now for more. Jack, first of all, remind us why
is gold considered a safe haven.
Speaker 2 (01:49):
I think I should start by saying that most financial
assets derive their value from the future income stream they're
going to grant you. So you buy a bond, it's
for the future income stream. You buy a share, it's
for a share of the future profits, and you're ultimately
relying on your counterparty to deliver on that. And so
when you enter environment like we've seen over the last
few weeks and months, where the future becomes very uncertain,
(02:11):
you might start to question your counterparty's ability to do so.
And then in that environment, gold becomes appealing because there
is no counterparty, you're not relying on anyone else. It's
just you and your gold. But then, of course, in
reality it doesn't really work like that. There's also just
the historical relationship of gold to various other assets during
periods of market stress. When COVID broke out, it rallied.
(02:32):
When Russia invaded Ukraine, it rallied. So the belief that
it is a safe even becomes a reality and traders
turn to it when markets run into trouble or due
political tensions run high. I should say that when you
get a severe sell off, gold does tend to get
caught up on that in the short term because there's
a dash for cash. Hedge funds have margin calls to meet.
Gold is liquid, it's easy to sell. But then after
(02:53):
those kind of periods of turbulence, then you start to
see it. Right, So that's what you saw this month,
and that's what you saw, for example, in the global
financial crisis.
Speaker 1 (03:02):
Well, let's try to understand how this recent rally fits
into historical trends. What does it tell us about investor
sentiment at the moment.
Speaker 2 (03:12):
So the current rally has been really strong, you have
to go fairly far back to find kind of parallels.
You could argue after the global financial crisis in the
years twenty nine twenty ten, gold had a similar performance,
and then further back than that, I mean, the best
time ever for gold was the nineteen seventies when you
had stagflation actually across a lot of the West. That decade,
(03:33):
Richard Nixon abandoned the gold standard and gold rose tenfold.
So at the moment, there's some factors obviously moving in
gold's favor. There's war in Europe, there's obviously dupolitical attentions
across the Middle East. You have some people who believe
that inflation is going to be structurally more elevated for
the next couple of years than it's been for the
last thirty years. And all of that, then combined with
(03:54):
this trade war, all that stands to benefit gold.
Speaker 1 (03:57):
What do we know about who's buying gold?
Speaker 2 (04:00):
The most important driver of the rally has been central banks.
Central banks hold gold in there foreign exchange reserve alongside dollars, euros,
yen other assets. But basically the situation is rich countries
that were part of the post war gold standard, so
that Bretonwood system have a lot of gold. The US
has nearly nine hundred billion dollars worth of gold. Germany
(04:20):
has nearly half that, Italy has a lot, Switzerland has
a lot, not so much the UK unfortunately, because a
lot of it was sold about thirty years ago by
Gordon Brown famously for about a tenth of the price
it is now. But that leaves other developing economy central
banks relatively underweight. So China, for example, has less gold
and its official reserves than Italy. So in the last
(04:41):
fifteen years central banks have been big buyers China, India,
Poland the Czech Republic. They've all been adding a lot
of gold. And that's actually sped up in particular since
the invasion of Ukraine by Russia, because Russia's foreign exchange
reserves held in euros held in dollars were free from them,
(05:01):
and that I think woke up a lot of central
banks around the world to the fact that their foreign
exchange reserves, which were predominantly held in dollars and also
in euros and pounds, were vulnerable to the long arm
of European sanctions or US sanctions. But again, it's just
you and your gold. If you are keeping your gold
in a safe within your own territory, it can't be seized.
(05:24):
It can't be taken. It's universally accepted, and so it's
a way to diversify your risk and to bring some
of your foreign exchange reserves out of the kind of
long arm of some of the western countries.
Speaker 1 (05:37):
I'm just picturing this idea of people sitting in rooms
full of gold now. But are there practical issues with
holding gold? Given that? As he pointed out, one of
the musual things about it is it's a physical asset.
Speaker 2 (05:47):
So there's a number of ways to hold it. I mean,
for most the most practical way is probably through a
gold back to ETF basically by a share in a
fund that holds a big pile of gold. It's easy
to buy, it's easy to sell. One drawback is that
there are with it because you're paying someone essentially for
storing the gold. Also, if you're some sort of doomsday
prepper type of buyer, which there are plenty of in
(06:08):
the gold market, you don't have direct custody over your gold,
So if that's important to you. I always think, though,
in a doomsday scenario, you're better off buying tinned food
and guns.
Speaker 1 (06:17):
Because I don't know how doomsday you're preparing for.
Speaker 2 (06:20):
I don't know how useful really gold would be if
everything goes wrong. You can also buy fifty thousand dollars
half kilo bar from Costco or any other bullion dealer.
Costco has become really popular. They charge gold shopping. Yeah,
you can go gold shopping, but Costco charge about a
two percent premium over the spot price. That's not bad,
but then there's practical issues like security and then crucially
(06:41):
reselling because obviously you'll go to a bullion dealer, but
they might only offer you a couple of percent below
the spot price. So again that's kind of a friction
to buying and selling.
Speaker 1 (06:51):
We heard from Warren Buffet a little bit earlier talking
about his views on gold and the question of what
utility it really has and how it rates as a
store of value. Is there many people that share his
view on gold and the question of utility.
Speaker 2 (07:05):
I mean, I think he's right. Basically, it's not that useful.
A small amount is used in technology. It has ornamental values,
it's quite beautiful, has its distinctive color, it doesn't tarnish.
It's very valuable, so it's good for jewelry it does,
but its value, you know, three five hundred dollars an
ounce is far in excess of its actual utility. What
it does have going for it is scarcity. It's quite
(07:27):
rare in the Earth's crust. It's quite difficult to get out.
It has obviously historical importance, the cultural salience millennia of history,
as a store of value, as something that has been
perceived to be valuable, and so I guess you could
say in some senses the use case is a bit
like bitcoin, where you don't have a counterparty. As I
mentioned earlier, Bitcoin obviously also requires some effort to mind.
(07:49):
But the difference is that, I mean, gold has a
track record of rising during periods of market stress, it's
not massively volatile, and it has strong cultural importance in
parts of the world economy that are growing very quickly,
so China and India and Pakistan.
Speaker 1 (08:04):
What about the risk of a gold bubble? What could
disrupt this rally that we've seen that's pushed gold to
record high after record high.
Speaker 2 (08:13):
The fact that it's nearly been a unbroken line upwards
since early twenty twenty four, some people in the market
think that a pause or a period of consolidation might
be likely. Some of the things that could be bearish
for the price if you had major easing of the
trade war, for example, any de escalation in major conflicts,
(08:33):
so in particular the war in Ukraine. That could lead
to a selloff if people perceived geopolitical tensions to be
easing somewhat. But I think the thing that would do
lasting damage, but it's really a tail risk, is if
you had some of the large developed economy central banks,
so the US, which has a lot of gold obviously,
or Germany or Italy, if for whatever reason one of
(08:55):
those countries decided to start selling their gold into the rally,
for example, if they had a debt crisis or some
other reason to do so, that would be extremely burish
for the price. And any news or hints towards that
I think would be very damaging to the price. And
that was actually what drove gold's bear market through the
(09:16):
nineteen nineties right up to two thousand. Everyone was selling
their gold and the consensus was that gold is a
relic and the smart thing to do is sell it
and take dollars what you can. And that was the
environment in which the UK sold its gold for such
a low price. Central banks have been buying for the
last fifteen years, that's been the key driver of price.
I think the only thing that will really halt and
(09:36):
reverse gold would be if that trend stops.
Speaker 1 (09:39):
Okay, Jack Ryan, our Precious metals reporter, thank you very much.
For more explanations like this from our team of three
thousand journalists and analysts around the world, go to Bloomberg
dot com slash explainers. I'm Stephen Carroll. This is here's why.
I'll be back next week with more. Thanks for listening.
Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carroll, and
this is Here's Why, where we take one new story
and explain it in just a few minutes with our
experts here at Bloomberg. In a world of increasingly complex
ways to invest your money, it's easy to forget that
(00:24):
one of the most trusted assets is still a metal
dug out of the ground.
Speaker 2 (00:29):
Gold continues to go from strength to strength once again,
all time records highs.
Speaker 3 (00:33):
Heading towards recession by some of this rock.
Speaker 1 (00:36):
Was it just gold for everyone?
Speaker 2 (00:38):
Yeah, it certainly seems that way.
Speaker 1 (00:40):
We see four things. Stocks go down, bonds go down,
the dollar goes down, and gold goes up. During the
market turbulence that's followed Donald Trump's return to the White House,
gold has shone more brightly than ever. Investors seeking refuge
from wild swings in stocks, bonds, and currencies have put
(01:00):
gold prices to record after records. Not everyone's a fan, though.
Here's legendary investor Warren Buffer speaking at Berkshire Hathaway's annual
meeting in two thousand and five.
Speaker 3 (01:11):
I don't see gold as a store of value. And
it's the truth is, it hasn't worked very well, turning
out about three or four thousand tons of gold a year.
And you know, we take it out of the ground
in South Africa and we put it in the ground
at Fort Knox or someplace New York, vin and it
doesn't do much along the way for anybody.
Speaker 1 (01:30):
And yet gold's appeal hasn't faded in the twenty years
since it's actually increased. Here's why investors can't get enough
of gold. Our precious metals reporter Jack Ryan joins me
now for more. Jack, first of all, remind us why
is gold considered a safe haven.
Speaker 2 (01:49):
I think I should start by saying that most financial
assets derive their value from the future income stream they're
going to grant you. So you buy a bond, it's
for the future income stream. You buy a share, it's
for a share of the future profits, and you're ultimately
relying on your counterparty to deliver on that. And so
when you enter environment like we've seen over the last
few weeks and months, where the future becomes very uncertain,
(02:11):
you might start to question your counterparty's ability to do so.
And then in that environment, gold becomes appealing because there
is no counterparty, you're not relying on anyone else. It's
just you and your gold. But then, of course, in
reality it doesn't really work like that. There's also just
the historical relationship of gold to various other assets during
periods of market stress. When COVID broke out, it rallied.
(02:32):
When Russia invaded Ukraine, it rallied. So the belief that
it is a safe even becomes a reality and traders
turn to it when markets run into trouble or due
political tensions run high. I should say that when you
get a severe sell off, gold does tend to get
caught up on that in the short term because there's
a dash for cash. Hedge funds have margin calls to meet.
Gold is liquid, it's easy to sell. But then after
(02:53):
those kind of periods of turbulence, then you start to
see it. Right, So that's what you saw this month,
and that's what you saw, for example, in the global
financial crisis.
Speaker 1 (03:02):
Well, let's try to understand how this recent rally fits
into historical trends. What does it tell us about investor
sentiment at the moment.
Speaker 2 (03:12):
So the current rally has been really strong, you have
to go fairly far back to find kind of parallels.
You could argue after the global financial crisis in the
years twenty nine twenty ten, gold had a similar performance,
and then further back than that, I mean, the best
time ever for gold was the nineteen seventies when you
had stagflation actually across a lot of the West. That decade,
(03:33):
Richard Nixon abandoned the gold standard and gold rose tenfold.
So at the moment, there's some factors obviously moving in
gold's favor. There's war in Europe, there's obviously dupolitical attentions
across the Middle East. You have some people who believe
that inflation is going to be structurally more elevated for
the next couple of years than it's been for the
last thirty years. And all of that, then combined with
(03:54):
this trade war, all that stands to benefit gold.
Speaker 1 (03:57):
What do we know about who's buying gold?
Speaker 2 (04:00):
The most important driver of the rally has been central banks.
Central banks hold gold in there foreign exchange reserve alongside dollars, euros,
yen other assets. But basically the situation is rich countries
that were part of the post war gold standard, so
that Bretonwood system have a lot of gold. The US
has nearly nine hundred billion dollars worth of gold. Germany
(04:20):
has nearly half that, Italy has a lot, Switzerland has
a lot, not so much the UK unfortunately, because a
lot of it was sold about thirty years ago by
Gordon Brown famously for about a tenth of the price
it is now. But that leaves other developing economy central
banks relatively underweight. So China, for example, has less gold
and its official reserves than Italy. So in the last
(04:41):
fifteen years central banks have been big buyers China, India,
Poland the Czech Republic. They've all been adding a lot
of gold. And that's actually sped up in particular since
the invasion of Ukraine by Russia, because Russia's foreign exchange
reserves held in euros held in dollars were free from them,
(05:01):
and that I think woke up a lot of central
banks around the world to the fact that their foreign
exchange reserves, which were predominantly held in dollars and also
in euros and pounds, were vulnerable to the long arm
of European sanctions or US sanctions. But again, it's just
you and your gold. If you are keeping your gold
in a safe within your own territory, it can't be seized.
(05:24):
It can't be taken. It's universally accepted, and so it's
a way to diversify your risk and to bring some
of your foreign exchange reserves out of the kind of
long arm of some of the western countries.
Speaker 1 (05:37):
I'm just picturing this idea of people sitting in rooms
full of gold now. But are there practical issues with
holding gold? Given that? As he pointed out, one of
the musual things about it is it's a physical asset.
Speaker 2 (05:47):
So there's a number of ways to hold it. I mean,
for most the most practical way is probably through a
gold back to ETF basically by a share in a
fund that holds a big pile of gold. It's easy
to buy, it's easy to sell. One drawback is that
there are with it because you're paying someone essentially for
storing the gold. Also, if you're some sort of doomsday
prepper type of buyer, which there are plenty of in
(06:08):
the gold market, you don't have direct custody over your gold,
So if that's important to you. I always think, though,
in a doomsday scenario, you're better off buying tinned food
and guns.
Speaker 1 (06:17):
Because I don't know how doomsday you're preparing for.
Speaker 2 (06:20):
I don't know how useful really gold would be if
everything goes wrong. You can also buy fifty thousand dollars
half kilo bar from Costco or any other bullion dealer.
Costco has become really popular. They charge gold shopping. Yeah,
you can go gold shopping, but Costco charge about a
two percent premium over the spot price. That's not bad,
but then there's practical issues like security and then crucially
(06:41):
reselling because obviously you'll go to a bullion dealer, but
they might only offer you a couple of percent below
the spot price. So again that's kind of a friction
to buying and selling.
Speaker 1 (06:51):
We heard from Warren Buffet a little bit earlier talking
about his views on gold and the question of what
utility it really has and how it rates as a
store of value. Is there many people that share his
view on gold and the question of utility.
Speaker 2 (07:05):
I mean, I think he's right. Basically, it's not that useful.
A small amount is used in technology. It has ornamental values,
it's quite beautiful, has its distinctive color, it doesn't tarnish.
It's very valuable, so it's good for jewelry it does,
but its value, you know, three five hundred dollars an
ounce is far in excess of its actual utility. What
it does have going for it is scarcity. It's quite
(07:27):
rare in the Earth's crust. It's quite difficult to get out.
It has obviously historical importance, the cultural salience millennia of history,
as a store of value, as something that has been
perceived to be valuable, and so I guess you could
say in some senses the use case is a bit
like bitcoin, where you don't have a counterparty. As I
mentioned earlier, Bitcoin obviously also requires some effort to mind.
(07:49):
But the difference is that, I mean, gold has a
track record of rising during periods of market stress, it's
not massively volatile, and it has strong cultural importance in
parts of the world economy that are growing very quickly,
so China and India and Pakistan.
Speaker 1 (08:04):
What about the risk of a gold bubble? What could
disrupt this rally that we've seen that's pushed gold to
record high after record high.
Speaker 2 (08:13):
The fact that it's nearly been a unbroken line upwards
since early twenty twenty four, some people in the market
think that a pause or a period of consolidation might
be likely. Some of the things that could be bearish
for the price if you had major easing of the
trade war, for example, any de escalation in major conflicts,
(08:33):
so in particular the war in Ukraine. That could lead
to a selloff if people perceived geopolitical tensions to be
easing somewhat. But I think the thing that would do
lasting damage, but it's really a tail risk, is if
you had some of the large developed economy central banks,
so the US, which has a lot of gold obviously,
or Germany or Italy, if for whatever reason one of
(08:55):
those countries decided to start selling their gold into the rally,
for example, if they had a debt crisis or some
other reason to do so, that would be extremely burish
for the price. And any news or hints towards that
I think would be very damaging to the price. And
that was actually what drove gold's bear market through the
(09:16):
nineteen nineties right up to two thousand. Everyone was selling
their gold and the consensus was that gold is a
relic and the smart thing to do is sell it
and take dollars what you can. And that was the
environment in which the UK sold its gold for such
a low price. Central banks have been buying for the
last fifteen years, that's been the key driver of price.
I think the only thing that will really halt and
(09:36):
reverse gold would be if that trend stops.
Speaker 1 (09:39):
Okay, Jack Ryan, our Precious metals reporter, thank you very much.
For more explanations like this from our team of three
thousand journalists and analysts around the world, go to Bloomberg
dot com slash explainers. I'm Stephen Carroll. This is here's why.
I'll be back next week with more. Thanks for listening.
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