Five factors driving gold to record highs

1. US economic growth and interest rate cuts

The primary short-term driver of gold prices have been US interest rate expectations. Because gold offers no yield, its price often fluctuates when interest rates move. For example, if interest rates rise, gold becomes less appealing because an investor can get more for my money by parking it in an interest bearing asset, like a bank account. However, if interest rates fall, less interest gets paid to an investor, making gold relatively more attractive to hold.

At the moment, a weaker US labour market is leading interest rate markets to expect future interest rate cuts from the US Federal Reserve, pushing up the gold price.

2. Global geopolitics and "de-dollarisation"

A major long-term factor supporting gold is the gradual move away from the US Dollar (or more pertinently, US Dollar assets, like Treasury Bonds). While the reasons are multifaceted, the move away from US Dollar assets has accelerated this year with US President Donald Trump's aggressive trade policies.

To illustrate, when a country runs a trade surplus with the United States, it ends up with lots of US Dollars. In the past, these countries might use these Dollars to buy Treasuries to park the money somewhere safe and earn an interest rate on it. President Trump's trade policy has reduced the desirability of Treasuries, partly because it helps the US fund its deficits, partly because it exposes countries to the risk the US may use Treasuries as a weapon. As a result, those countries holding lots of Dollars are using them to buy gold instead as a store of value.

3. Fed independence and institutional risks

Another short-term driver for gold's recent rally relates to the independence of the US Federal Reserve. Last week's move to fire Governor Lisa Cook made it abundantly clear that President Trump is trying to stack the board of the Fed with allies and those who favour lower interest rates.

Investors see this as a problem for a couple of reasons. First, it diminishes confidence in the central bank to set interest rates based on economic data rather than politics. The second, it raises the possibility US interest rates are cut more aggressively in the future, risking higher inflation. As a result, investors are buying gold on the belief that it is a safer and more stable store of value than US assets.

4. US (and global) fiscal policy

Another long-term factor increasing gold's appeal is US (and global) fiscal policy. A pertinent debate in global financial markets is the sustainability of public debt and the significant ongoing deficits around the globe. For example, President Trump's so-called 'One Big Beautiful Bill' is projected to maintain US deficits at around 6% for the next 10 years, increasing US Debt to GDP to 120% by the mid 2030s from 100% currently.

For investors, such loose fiscal policy raises a couple of concerns. One is inflation again, because of all the additional spending in the economy. Another is currency debasement: the fear all the spending will erode the value of the currency. Another is debt serviceability, where economic growth isn't strong enough to cover the interest expenses on the debt. The mix is pushing investors from fiat assets and into hard stores of value like gold.

5. Geopolitics and sanctions

Something that has been a more meaningful driver of gold in recent years is rising global geopolitical tensions. The wars in the Middle East and Eastern Europe, along with sanctions on countries like Iran, have shut many wealthy individuals and certain governments out of the global banking and financial system. For example, many Russian entities after the invasion of Ukraine have had their assets frozen and bank accounts locked.

To circumvent these risks and store wealth, individuals and institutions have purchased gold and looked to store it in safe jurisdictions instead of holding onto paper assets and currency exposed to sanctions. This has been another driver of demand in the gold market and has supported prices.