2025-04-08T06:04:58.000Z

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LONDON: The recent surge in gold prices, which have skyrocketed to unprecedented levels, has sparked comparisons to the tumultuous period of the 1980s, when economic and political chaos similarly drove the precious metal to record highs. However, analysts suggest that the current rally is characterized by distinct dynamics that may influence its longevity.

In today's global landscape, tensions are escalating between traditional allies over critical issues such as U.S. tariffs, ongoing conflicts in Ukraine, and geopolitical strife in the Middle East. These complex factors have contributed to a scenario where major world powers are unlikely to unite quickly to resolve the underlying issues that are currently bolstering gold as a safe haven for investors, according to market experts.

Gold recently surpassed the remarkable threshold of $3,000 per ounce, with the latest catalyst being U.S. President Donald Trump's announcement of a fresh wave of tariffs targeting key trading partners. This marks a significant moment as it is the first time in many years that geopolitical events and economic uncertainty have emerged as the primary influences driving the gold market, noted HSBC analyst James Steel. In fact, spot gold reached an all-time high of $3,167.57 per troy ounce last week, reflecting a 16 percent increase this year alone, building on a remarkable 27 percent growth in 2024.

While analysts anticipate that the trajectory of the gold market may not be linear, they believe that the current surge into uncharted territory is more sustainable compared to the experience of 45 years ago. Historically, gold has maintained an inverse correlation with trade flows, meaning that as trade tensions rise, demand for gold often increases. Steel pointed out that Trump's aggressive stance on tariffs—including his recent announcement of the steepest trade barriers seen in over a century—has attracted a wave of new investors into gold, propelled by fears of an impending trade war.

Additionally, while the U.S. dollar is traditionally regarded as a safe-haven asset, signs are emerging that its status may be diminishing as uncertainties surrounding tariffs escalate. The potential erosion of confidence in the dollar could further enhance gold's appeal as a secure investment.

Since taking office just two and a half months ago, Trump has significantly altered the global order, suggesting that the U.S. may no longer provide the same assurances regarding European security that it has since World War II. Furthermore, his administration has shifted its approach towards the war in Ukraine and even floated the idea of annexing Greenland, which has sent shockwaves through the international community.

The issues propelling gold prices upward today differ markedly from those of the late 1970s, which included the Iranian Revolution and the oil crisis. Those challenges were resolved relatively swiftly, leading to a subsequent decline in gold prices. As Steel from HSBC noted, the recent breakdown of international cooperation over the past few years has resulted in gold maintaining a higher price point, suggesting a persistent demand driven by geopolitical uncertainties.

Trade tensions are merely one of several factors contributing to gold's upward trajectory in the 2020s. The decade has already been marked by a two-year-long global coronavirus pandemic, followed by Russia's invasion of Ukraine in 2022, along with economic instability in the Chinese property market and ongoing conflict in Gaza. The war in Ukraine has led to unprecedented Western sanctions that effectively froze half of Russia's foreign currency reserves, forcing Moscow to rely heavily on gold. This situation has prompted non-Western central banks to turn to bullion as a means of diversifying their reserves and moving away from dependence on the dollar.

Further monetary easing and concerns about budget deficits have also encouraged Western investment in gold in recent years. Addressing these pressing issues may necessitate a level of global cooperation that has yet to be witnessed in the current economic climate surrounding tariffs.

Unlike previous crises that prompted coordinated global responses, such as financial meltdowns or health pandemics, the current trade tensions do not present any real prospect of policy alignment among nations, according to George Griffiths, head of dealing at brokerage AMT Futures.

Although the gold market has achieved several milestones this year, one major hurdle still remains. Rhona O'Connell, a commodity analyst at StoneX, observed that gold reached a peak of $850 per ounce in January 1980, which would equate to approximately $3,486 in today's dollars. While nominal gold prices have indeed hit new highs, Steel of HSBC argued that it is essential to consider whether we have genuinely surpassed the 1980 milestone in real terms.

This context may soon shift. The current geopolitical landscape has led to heightened expectations for a prolonged rally in gold prices, with projections suggesting a potential peak in 2026, rather than in the current year. On March 26, commodity strategist Michael Widmer at Bank of America revised his gold price forecasts, anticipating $3,063 and $3,350 per ounce in 2025 and 2026, respectively, up from previous estimates of $2,750 and $2,625. He also expressed a bullish outlook for gold prices, predicting they could reach $3,500 within two years.

“Forecasting $3,000 was significantly easier than projecting $3,500 for gold. But what is the risk here?” Widmer mused. “The downside risk is a return to the conditions we experienced two years ago, where a more collaborative global environment prevailed, devoid of trade war threats, with the U.S. Federal Reserve raising interest rates, and economies stabilizing. In such a scenario, the gold trade could effectively cease.”

“However, I believe such a scenario is highly unlikely.”