Decoding Gold: Key Price Drivers and Investment Opportunities

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From relic to resilience: the enduring case for gold

Gold is no longer a mere vestige of ancient monetary systems; it has reasserted itself as a core pillar in modern portfolio construction. Since early 2024, the yellow metal has been among the world’s bestperforming financial assets, rising in both nominal and real terms. In the fourth quarter of last year, gold reached an all-time high in inflation-adjusted terms, marking a new chapter in its long history as a store of value.

What makes gold’s latest ascent since 2022 particularly striking is its defiance of textbook macroeconomic logic. Real interest rates have climbed, the U.S. dollar has remained resilient, and yet gold has surged. Its performance suggests that deeper structural and behavioural forces are at play— forces that reflect investor skepticism toward fiat currencies after a period of high inflation, rising geopolitical disorder, and the rebalancing of global reserve preferences.

As investors reassess risk in a world marked by policy divergence and shifting power dynamics, gold is emerging as a strategic asset with a compelling role in diversified portfolios.

Gold through the ages: from currency anchor to macro hedge

The financial history of gold is a story of trust. As early as 600 BC, the first gold coins were minted in the ancient kingdom of Lydia (present-day Turkey) marking the formal birth of gold as a medium of exchange. For more than two millennia, gold underpinned systems of trade and credit, culminating in the gold standard of the 19th century and the Bretton Woods era of the 20th, when currencies were pegged to the U.S. dollar, and the dollar to gold.

That era ended in 1971 with the suspension of dollar convertibility. Since then, gold has floated freely but has not drifted into irrelevance. Instead, it has morphed into a versatile asset: a crisis hedge, an inflation buffer, a portfolio diversifier, and a geopolitical insurance policy. Gold does not carry a risk premium (unlike equities and bonds) but it tends to be a useful hedge in scenarios where assets with a risk premium do poorly.

For allocators, the key takeaway is this: Gold’s lack of intrinsic yield isn’t a weakness, it’s a feature. It’s one of the few assets that represent no one else’s liability. In a world where counterparty risk, whether sovereign or institutional, can no longer be taken for granted, that attribute becomes increasingly valuable.

What drives the gold price today?

Gold behaves less like a commodity and more like a currency—durable, scarce, and deeply liquid. Unlike oil or copper, gold is not consumed. Nearly every ounce ever mined still exists in some form, whether in vaults, jewellery, or exchange-traded funds. As a result, its price is driven not by marginal cost of production but by marginal shifts in demand, trust, and perception.

The real-rate puzzle

Real interest rates—nominal rates minus inflation— have traditionally exerted a strong influence on gold prices. When real rates are low or negative, the opportunity cost of holding gold diminishes, enhancing its appeal. The historical inverse relationship between real rates and gold is well documented.

But the past few years have complicated this narrative. Since 2022, U.S. real yields have climbed, yet gold has powered higher. The correlation has weakened, if not broken entirely. This divergence suggests that gold is responding more to non-rate factors, such as fiscal excess, geopolitical stress, and the erosion of institutional trust.

More recently, the inverse correlation with real rates has shown signs of re-emergence, particularly in response to rate volatility, implying that gold is once again reacting tactically to real-yield swings, but within a broader strategic shift.

Central banks: strategic buyers

The most consequential, yet underappreciated, force behind gold’s ascent is stockpiling by central banks. According to the World Gold Council, central-bank demand reached a 30-year high in 2024, with emerging market institutions leading the charge. This shift isn’t a speculative bet; it’s a long-term portfolio reallocation away from fiat exposure.

The Russia-Ukraine war has accelerated the trend. For many countries, especially those facing geopolitical friction with the West, gold serves as a neutral, sanctionproof reserve. China, despite some recent moderation in official purchases, possibly owing to high prices, remains structurally committed to gold accumulation.

This official-sector demand is likely to persist. In an age of U.S. fiscal largesse, geopolitical multipolarity, and rising U.S. weaponization of financial infrastructure, gold is one of the few truly apolitical assets left on the planet.

Fiscal risk and the erosion of dollar credibility

Another structural catalyst is the mounting U.S. fiscal deficit. In 2024, the U.S. ran a deficit well above $2 trillion, with no credible plan for consolidation. Investors are increasingly pricing in a fiscal risk premium, not just for Treasury bonds but for the dollar itself.

Because gold is priced in U.S. dollars, a structurally weaker greenback enhances gold’s attractiveness for foreign investors. In addition, the perception that U.S. debt might be monetized (whether through overt quantitative easing or implicit financial repression) adds to gold’s appeal as a hedge against fiat dilution.

Investment vehicles: from bullion to beta

Gold exposure can be gained through multiple channels, each with different risk-return profiles:

• Physical gold (bars, coins): Offers the ultimate store of value but is illiquid and costly to store.
• Gold ETFs: Provide liquid, low-cost exposure to spot prices.
• Futures: Allow for tactical positioning but require active management.
• Gold equities: Offer leverage to the gold price and equity-style returns.

Gold equities, especially, deserve renewed attention. Although historically the track record of gold miners has tended to be poor because their capital-allocation decisions have not been strong, the sector has matured. Balance sheets are healthier, capital discipline has improved, and return-on-equity metrics have rebounded.

Canadian gold miners: a tiered opportunity set

Generally, gold equities exhibit greater price volatility than gold bullion itself; however, gold-equity betas have declined from historical levels, leading to reduced sensitivity to gold-price movements. This shift can be attributed, in part, to companies’ significantly deleveraging their balance sheets and reducing both financial and operational leverage relative to previous cycles. Canada offers a full spectrum of gold-equity exposure. Each category represents a different stage in the mining lifecycle, with varying levels of risk and reward.

• Senior producers: Established companies with multiple operating mines and significant production capacity. They typically have stable cash flows and lower risk profiles, in addition to being well capitalized. These producers focus on maintaining and expanding their operations while delivering consistent returns to investors. Lower risk, lower beta.
• SMIDs: Small- and mid-cap producers or developers that have one or more operating mines and are often in the growth phase, working to expand their production or develop new projects. These companies carry higher risks than senior producers but offer greater potential for growth, making them attractive to investors seeking higher returns. Higher risk, higher return potential.
• Explorers: Early-stage firms that have no production or operating mines, and whose success depends on finding economically viable mineral deposits. As gold prices begin to rise, a long list of projects is expected to resurface in the market, many of which bankrupted companies or failed to take off amid various challenges. Extremely high risk that may not be suitable for retail investors.

Since 2020, the Canadian gold mining sector has deleveraged meaningfully. Companies that overextended themselves in the 2010–2012 M&A wave have become leaner and more disciplined. In 2024, rising gold prices boosted free cash flow, prompting many to increase shareholder returns through buybacks and dividends.

Canadian miners are well positioned to outperform if the gold bull market continues. Security selection remains key, however, because legacy projects of uneven quality from past cycles will resurface.

Strategic allocation: gold’s role in a modern portfolio

Gold is not a growth asset, nor is it a yield generator. But it excels at one function: hedging uncertainty. When traditional assets break their historical relationships— when bonds and stocks both fall, as they did in 2022— gold tends to step in.

For example, in most U.S. recessions since 1971 (when the gold standard was effectively abandoned), gold has outperformed U.S. Treasuries, offering more bang for the buck as a hedge against economic downturns.

But not every recession is the same, and assets don’t react similarly to every recession. Our work on the history of U.S. elections shows that gold offers its strongest returns, by far, when the country undergoes a structural recession, during which long-term imbalances are rectified. Prime examples are the bursting of the dot-com bubble and the 2008 Great Financial Crisis, when gold rallied by 16% and 25%, respectively.

In a nutshell, gold’s low correlation to financial assets, especially during periods of stress, makes it a rare portfolio stabilizer. This attribute is especially relevant for institutions seeking robustness in tail scenarios.

For retail investors, gold ETFs offer a liquid, accessible means of achieving diversification. For more aggressive profiles, gold miners offer upside optionality but require tolerance for equity-style drawdowns.

Conclusion: gold’s quiet renaissance

The narrative about gold is changing. What was once seen as a fear trade, or a doomsday hedge, is being reframed as a rational, strategic allocation in an era of deep macro uncertainty. The market isn’t just buying gold; it’s buying insurance against a breakdown in the rules that have governed financial markets for decades.

From real rates and dollar credibility to geopolitical order and institutional trust, the foundations are being questioned. In this context, gold offers something no other asset can: credibility without counterparty.

Our view: Maintain a structural gold allocation of 5– 10% in diversified portfolios. Reassess it during volatility spikes and consider gold equities for added convexity. As 2025 unfolds, gold may not just preserve wealth; it may reveal where trust is truly scarce.