Gold has always sparked strong opinions. Some see it as the ultimate safeguard against inflation, while others ignore it completely in their investment strategies.
One thing that’s hard to dispute, though, is gold’s recent performance. The price has surged to record highs, significantly outperforming major global share markets over the past few years. In fact, it’s delivered more than double the returns of global equity benchmarks in the same period.
Even among experienced gold investors, there’s debate about what’s pushing prices up—and whether it can last.
One explanation is that central banks in emerging markets have been piling into gold. After seeing how Russia’s rouble was cut out of the global financial system, other countries are now wary of relying on foreign-held reserves. In this geopolitical climate, especially with tensions involving the United States, gold looks like a much safer bet than holding US Treasury bonds, which are usually seen as a safe haven.
If true, this would be very supportive for gold prices, as central banks are long-term holders who don’t get spooked by daily market moves. Jim Luke, commodities fund manager at Schroders, argues that this sort of buying “puts a floor” under the gold price. According to him, demand has come largely from Asia—especially China—but there’s now growing interest from Western investors as well.
Luke believes that unless the US dollar strengthens or the government suddenly balances its budget, gold prices are unlikely to fall significantly from current levels—even after reaching all-time highs.
On the other hand, Ned Naylor-Leyland from Jupiter Asset Management believes that while central bank demand is important, it’s not the main driver. The gold market is simply too big for even strong institutional buying to move the price this much. Instead, he points to activity in the futures markets, where investors are betting on the long-term outlook for gold. In his view, this reflects growing mainstream confidence in the asset class.
The Role of Interest Rates
Gold’s reputation as a safe-haven asset means it often competes with government bonds. In theory, when real interest rates (interest after inflation) rise, gold becomes less attractive. After all, gold doesn’t pay any income—so when you can get, say, a 5% return from a long-term US bond, gold needs to rise in price just to keep up.
But recent trends have flipped this logic on its head. Even as US bond yields have increased, gold prices have continued to climb. Naylor-Leyland explains that while nominal yields have gone up, real yields (after accounting for falling US inflation) haven’t risen much. At the same time, concerns about the size and sustainability of the US government’s budget deficit have rattled investors.
Many now worry that the rising supply of US bonds to cover the deficit could drive down bond prices even further. The added volatility has made many investors hesitant. Luke notes that rather than boosting the appeal of government bonds, rising yields are actually making them less attractive due to capital losses.
Gold Miners Lagging Behind
While the gold price has surged, mining stocks haven’t kept pace. Luke, who manages a fund that invests in both gold bullion and mining companies, says he’s overweight in both right now. He believes gold miners are undervalued—particularly smaller companies—and he’s taken advantage by putting more capital into this space.
He suggests the sluggish performance of mining shares, especially those of junior explorers, is due to shifting investor preferences. Many retail investors in the US, who once supported small mining stocks, have now flocked to cryptocurrencies instead.
Among the big miners, there’s a curious mismatch: physical gold is being bought up heavily by investors in the East, but mining company shares are priced according to more pessimistic Western sentiment. For Luke, this disconnect presents a strong opportunity.
Naylor-Leyland adds that companies focused on gold exploration—rather than those already in production—are seeing particularly steep discounts. He focuses his investments on miners in politically stable regions.
A Wealth Management View
Simon King, Chief Investment Officer at Vermeer Partners, has always used gold as a key component of his portfolios. He sees it not just as a hedge against inflation or market turmoil, but as a long-term core holding.
“We’ve used gold as a consistent part of our strategies since day one,” he says. “We think of it as a true diversifier and an attractive asset in its own right. You have to hold it through the cycles—it’s not something to trade in and out of.”
King values the physical nature of gold—you can hold it in your hand, and its supply is known and limited. That makes it preferable, in his view, to newer assets like crypto.
James Sullivan, head of partnerships at Tyndall, adds: “Gold isn’t really like equities or bonds. It sits in its own category—closer to a currency, or part of an alternatives portfolio. It tends to shine when things go wrong—when real yields are negative or there’s uncertainty in the world.”
He warns, however, that gold’s performance can be binary. It can surge when conditions are right, but there’s also the risk of being left behind when other assets rally.
Final Thoughts
In Australian dollar terms, gold has surged well past A$3,500 per ounce this year, and while some investors fear a peak, others see more room to run. Between central bank buying, doubts over the US fiscal outlook, and a shift away from bonds and crypto, the case for holding gold remains strong.
For long-term investors, the metal continues to play a key role—as both a diversifier and a store of value—especially in uncertain times.
