The price of gold has hit one record after another this year, and if the past is any guide, the precious metal’s wild ride means bad news could be on the way.
Gold is the doomsday prepper’s favorite commodity, a store of value for difficult times. In the 1970s, gold prices shot up alongside runaway inflation and the end of a system that pegged currencies to the shiny metal. The 2008-09 financial meltdown similarly prompted a spike in demand for gold. In 2020, when COVID-19 shut down the world’s economies, gold prices took off again.
It’s almost as if gold is a professional mourner at economic funerals.
This time, however, gold’s rise is not due to a dramatic downturn: The U.S. stock market and corporate earnings have held up well this year. Instead, demand for gold is a response to an erosion in the U.S.-led world order that brought about decades of stability and free trade.
The current buying spree picked up when President Joe Biden froze the assets of Russia’s central bank in response to the 2022 invasion of Ukraine. Since then, central banks around the world, including those at risk of similar sanctions, have purchased more than 1,000 tons annually. Piling up gold helps to diversify their reserves away from the dollar, giving the U.S. less leverage over them.
More recently, China’s central bank took gold purchases to a new level, adding to its reserves every month this year. One of the main reasons behind this move is clear: President Donald Trump and his trade war. For China, and others, stockpiling gold is a hedge against an unreliable economic partner whose unilateral actions have made U.S. Treasury securities a riskier investment than in the past.
Gold also is thought to be a hedge against inflation. In the U.S., inflation is relatively tame at about 3%, way below the double-digit levels during the 1970s. Apart from precious metals, most commodity prices are not soaring along with gold. But given the Trump administration’s costly tariffs, and its embrace of deficit spending under the “Big Beautiful Bill Act,” many experts warn it would be no surprise if inflation picks up in the years ahead.
