Gold set a further record high on Monday, rising above $5,000 per ounce after a week of geopolitical noise amid the World Economic Forum summit in Davos, Switzerland.
Volatility from geopolitical shocks, including US tariffs, has caused renewed interest in safe haven assets. Over the past year, the price of gold has surged over 80%.
While gold is up at a record high, Lucy Smith, investment manager at Killik & Co, said markets generally feel calmer than before Davos. During the conference, Trump ruled out military action in Greenland.
See also: Covered: After a record year for European banks, what’s next?
“The looming threat of tariffs is an immediate and significant risk for investors,” she noted, however. “As seen last April, Trump’s gung-ho approach to tariffs means they can come at any time, which is why safe-haven assets are performing so well.
“The biggest takeaway from all this is that geopolitics will continue to define global markets,” she added. “[Canadian President] Carney’s speech at WEF was a clear call to action for the middle powers to push back against the US. If they do so, expect more volatility and an even higher gold price.”
Strategic diversifier
In terms of asset allocation, Matt Bance, solutions strategist and portfolio manager at T. Rowe Price, says the precious metal’s latest record high highlights its importance as a strategic portfolio diversifier.
“We view recent price action not as a signal to chase performance, but as confirmation that the macro conditions under which gold has historically added value – policy uncertainty, institutional strain, and geopolitical risk – remain in place,” he said.
Central bank demand has been another key driver of gold prices. Uncertainty around the US’s trade policy under Trump and increased scrutiny of central bank independence, has led central banks to diversify their US dollar holdings.
In this environment, Bance says, gold benefits as an asset perceived as outside the fiat system.
See also: Markets rise on Trump’s EU tariffs U-turn
“Importantly, strength has not been confined to gold alone. Moves across the broader precious-metals complex, most notably silver, have been striking, with the gold–silver ratio compressing from above 100 in April to around 49 currently.
“Taken together, gold’s performance reflects the intersection of geopolitical risk, inflation uncertainty, and institutional credibility concerns, reinforcing its role as a strategic hedge rather than a cyclical trade.”
“What began as a rally built on central bank buying has turned into one of the most spectacular momentum trades of recent years, made all the more impressive as bitcoin continues to struggle,” added Chris Beauchamp, chief market analyst UK at IG Group.
“But with limited sources of fresh supply gold’s scarcity means it could go much further, even if some caution is required here – it has been months since we saw any sustained losses for precious metals, and the price continues to look vulnerable should upward momentum falter.”
See also: Does the gold price crash signal full reversal or short-term correction?
