How long will gold mania last?
Professional and retail investors are swarming to buy the precious metal, raising the risk of a bubble
Ian Smith and Leslie Hook in London and Harry Dempsey in Tokyo
Just an hour after Tokyo gold dealer Nihon Material opened its doors, new buyers were already being turned away.
Kenji Onuki, the 40-year-old director of an architecture firm, was feeling victorious after securing his first ever purchase of the precious metal, a small gold bar, despite now having to wait a month for it to arrive.
“I thought it was important to have something that physically exists, something you can actually hold in your hands,” he says.
Around the globe, investors new and old are pouring into this ancient store of value after a powerful, three-year rally driven by central bank purchasing captured the imagination of not just professional investors but of the broader public.
It is just one example of how even outside traditional gold-loving markets such as India and Turkey, retail investors are swarming to buy gold bars and coins.
In the process, they have poured fuel on the rally.
Bullion is now up more than 50 per cent this year, to a record $4,000 a troy ounce, putting gold on track for its best year since 1979, when it more than doubled due to inflation fears.
Renewed trade tensions between the US and China this week have stoked the rally even further.
Japan’s own gold rush kicked off in earnest two weeks ago when domestic retail prices broke through ¥20,000 per gramme, sparking a local media frenzy that elevated gold’s blistering bull run into the view of Japanese retail investors.
The 19 per cent surge since the start of September is tricky to pin on any of the traditional drivers of spot gold prices: interest rates, inflation expectations, or fresh worries about geopolitical instability.
Instead, many observers point to a gold mania that appears to have gripped investors large and small.
“Now everyone is like, ‘When’s the dip going to come?’” says Greg Frith, who runs physical bullion trading for Gunvor, the Swiss commodity trader.
“But every time the price is coming off, there’s just waves of institutional buying.”
The big engine underlying the rally since 2022 has been record purchases by central banks, mainly in developing countries, who want to diversify their reserve assets away from the US dollar.
On top of that, a more recent wave of institutional and retail buying has taken the market by surprise: a record $26bn poured into gold-backed exchange traded funds during the third quarter — as an investor community that has long been sceptical about the incomeless asset has been overtaken by what some dubbed “gold-plated Fomo”.
On the back of the surging flows, Société Générale has said that reaching $5,000 per troy ounce is “increasingly inevitable”.
Every storyline of 2025 is invoked as a reason to buy.
A haven from Donald Trump’s America and a less stable world; protection from future debt crises in rich countries; and the sole remaining refuge from richly priced stocks when bonds are wobbling.
“The main underlying driver throughout the world has been an inherent fear of some form of financial breakdown.
It’s the fear of financial Armageddon, shall we say, the runaway debt scenario,” says David Tait, chief executive of the World Gold Council, which represents mining companies.
“The major underlying reason for the entire gold rally has been debt,” he adds, acknowledging that the rally has at times “defied logic”.
As the rally builds, a growing chorus of investors and traders is starting to ask — when will it stop?
Even longtime holders have been struck by gold’s popularity.
“It feels a little bit too good to be true,” says Trevor Greetham, head of multi-asset at Royal London Asset Management.
But the fund manager, which has had a position in gold for almost a decade, added more last week.
“People are looking at gold as a geopolitical hedge, a fiscal hedge and a Trump hedge,” Greetham says.
“The biggest risk to gold is common sense breaking out in America,” he adds, half-joking.
Some call this wave of gold buying the “debasement trade”, where investors are buying it as a long-term hedge against major economies letting inflation run hotter, and in the process eroding the value of government bonds.
Front and centre is the US, where Trump is exerting a high degree of pressure on the central bank to cut interest rates explicitly to help lower the country’s debt servicing costs.
If US projected debt levels were to decline, that could put a damper on gold, Tait, of the World Global Council, argues.
“There are 10 things that favour further appreciation, and one that would turn it around, and the one is if Mr Trump gets incredibly lucky with a low-inflationary, high-growth environment,” he says.
Investors fretting over Federal Reserve independence point to the appointment of White House adviser Stephen Miran to the central bank’s board, and the landmark legal battle over whether President Trump can fire governor Lisa Cook.
“You saw a real spike in the gold price with the attack on Lisa Cook,” observes Ruth Crowell, chief executive of the London Bullion Market Association.
“If there’s certainty for the continuation of her job at the Fed, things could calm down.”
Another factor that could damp the rally is if some central banks were to start to sell gold to keep it within their target allocation ranges.
Because gold has appreciated so quickly, its value as a percentage of central bank holdings has also soared.
It is not straightforward to judge whether current gold prices are in bubble territory: unlike shares in a company, it generates no profits or cash that can be measured against its cost.
And unlike a bond, it pays no income that can be compared to returns from other assets.
Instead, its price tends to be driven largely by investors’ wider views of the world, and is no stranger to speculative busts — sometimes when inflation fears fade.
An epic surge in the 1970s inflation shock was followed by a slump in the early 1980s, and a similar drop occurred after gold peaked in 2011.
Some analysts already worry about herd behaviour in the current market.
A quarter of fund managers surveyed in last month’s Bank of America survey put “long gold” bets as the most crowded trade in the market, up from 12 per cent in August and second only to bets on the so-called Magnificent Seven tech stocks.
In the process, “investors could be inadvertently creating a new risk — a potential bubble in gold,” says Guy Miller, chief market strategist at insurer Zurich.
In performance terms, the recent price surge has accelerated way beyond a usual move, with the gold price now more than 20 per cent above its 200-day moving average and 70 per cent above its 200-week average, BofA analysts said in a note.
That has happened only three times before, it said, in peaks that were followed by 20-33 per cent declines.
One driver of gold this year has been mounting expectations of interest rate cuts, which reduce the appeal of holding government debt, even as people worry over the inflation outlook.
In the US, investors are expecting four quarter-point cuts by the end of next year, despite inflation running above the Fed’s 2 per cent target, at 2.7 per cent in August, and easy fiscal policies that are pouring more fuel on growth.
As a result, some investors are increasingly warning of a potential inflationary surge.
“We are running pretty massive structural deficits through a bull economy,” says Dan Taylor, chief investment officer at Man Numeric, an investment manager.
“I actually think what people are doing is appropriately trying to protect capital and owning assets that are not paper assets.”
Debts are so high in the US that it has “really only one half decent way out”, he adds, which is a “more inflationary regime than all of us are used to in our lives”, pushing investors to buy things “with a more limited supply” such as gold, or even bitcoin.
Signs of this so-called fiscal dominance, where central banks’ rate-setting policies are under greater pressure from free-spending governments, are growing in global markets.
Sanae Takaichi, the new leader of Japan’s ruling Liberal Democratic party, is expected to put the Bank of Japan under pressure not to increase interest rates quickly.
“The fact that a potential hedge asset like gold goes up when equities go up tells me that the value of money has come down,” says Matt McLennan, co-head of the global value team at US asset manager First Eagle.
For some investors, the debasement narrative only runs so far.
Long-term bond market measures of US inflation expectations have not surged, suggesting that the Fed losing control of inflation is not the market’s base case.
The recent escalation of trade tensions between the US and China has further fuelled the rally in recent days, when Chinese buyers returned from a weeklong holiday.
Some longtime gold watchers worry about the sense of Fomo now gripping the asset class, where investors seeking not to miss out on the price momentum could end up pushing it towards a sharper correction.
“It makes it a little bit more unstable, potentially,” says Michael Haigh, global head of commodities research at Société Générale.
Gold’s inherent qualities make it difficult to time an exit, say investors, or to get a measure of how much over-exuberance there is in the asset class.
Feeding the unease among investors is that some traditional methods of deciphering whether gold is too expensive or cheap are no longer as reliable as they once were.
One is the relationship with inflation-adjusted, or “real”, interest rates.
On the traditional view, when these rates moved lower the opportunity cost of holding gold rather than income-producing bonds fell, and gold prices would find support.
But the relationship started to break down as real interest rates rose at the same time as gold after the pandemic.
One pattern that has held up is the inverse relationship between gold and the dollar, in part due to the dollar-denominated metal being cheaper to purchase in other markets when the US currency weakens.
Gold’s best start since the 1970s comes as the dollar is on track for its worst year since 2017, as a combination of intensifying expectations for rate cuts and Fed independence worries drag down the greenback.
One of the most striking shifts has involved central bank reserves.
Dollar assets as a whole — including not only Treasury bonds and notes, but also dollar deposits, equities and various asset-backed securities — still make up by far the biggest proportion of official central bank reserves globally.
But a combination of years of gold-buying and the soaring bullion price means that in value terms, central banks’ gold holdings are poised to overtake US government bonds as the pre-eminent reserve asset.
As a percentage of central bank reserves, gold has risen from 10 per cent a decade ago, to around 24 per cent at the end of June, according to World Gold Council data.
Global central banks have been steadily accumulating gold over the past decade, and, excluding the Federal Reserve, held 29,998.4 tonnes at the end of June, according to World Gold Council data that includes both reported and unreported purchases.
That implies that, at current prices, the value of official bullion reserves outside the US would be around $3.93tn — a fraction higher than the end of July number for total foreign holdings of Treasury securities including bills, T-bonds and notes, which stood at $3.92tn.
The ultra-bull case for gold would be a loss of US inflation-fighting credibility over the long term that also hammers the dollar, as investors ready themselves for excessively low interest rates and asset debasement.
Because gold production is limited to what miners can produce, the supply is relatively inelastic in the short term — and expected to be largely flat over the next three years.
The surge in price has already had an impact on increasing production from artisanal miners, and increasing the production by criminal gangs, particularly in South America and southern Africa, but there are few estimates for the scale of their production.
At Britain’s Royal Mint, a government-owned company that tracks its history to the reign of Alfred the Great, the business is on course for record monthly volumes in its consumer sales.
It has also had its largest ever single combined purchase of gold and silver coins, worth over £50mn and five times its 2022 record.
It is “a historic moment in the precious metals market”, says Nicola Mitchell, the Royal Mint’s chief commercial officer.
The recent surge of retail buying is seen by many as a symptom of a market that may be overheating.
The rally has also spilled over into silver, which hit a new all-time high on Tuesday of more than $52 per ounce, and is experiencing a shortage of physical metal readily available in London.
On Monday, the Royal Mint’s website appeared to have sold out of its one-ounce silver “Britannia” coins, which are popular with retail investors for whom gold is out of reach.
Consumption of bars and coins globally last year was around 1186.3 tonnes — roughly a quarter of global demand — and has continued to grow this year, according to WGC data.
In Turkey, where gold makes up a fifth of household wealth, the sharp rise in prices could boost consumer spending by making people feel wealthier, according to Capital Economics.
And in Hong Kong, one of the world’s biggest gold buyers on a per capita basis, families that have been storing their gold for decades are rushing to sell to take advantage of high prices.
In Japan, the surge in demand has been so ferocious that Tanaka Precious Metals, one of Japan’s leading gold providers, suspended sales of small gold and platinum bars last week.
“The behaviour of investors has changed 180 degrees,” says Bruce Ikemizu, chief director of the Japan Bullion Market Association.
“People are really feeling inflation and the weak yen.
They’re realising that doing nothing loses their money’s value.”
A country which experienced three decades of deflationary stagnation that did not erode people’s savings has now seen roughly three years of inflation above 2 per cent.
Kobayashi, a 61-year-old property manager who started amassing gold three years ago, was another who came to Nihon Material on Thursday, but with a different purpose: to gather market intelligence to see if he should buy, sell or hold.
“Lately, it has been so sharp and sudden. I wanted to feel whether it has staying power,” he says.
Taking in the consumer frenzy inside the store and reassured by the steady purchases by China’s central bank he makes his decision: “It’s probably best to hold on to it.”
Additional reporting by William Sandlund
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