The recent rise in the price of gold is not in itself surprising – different assets go in and out of favour all the time. What is a little opaque is – why now? To talk about a flight to traditional safety in the face of global uncertainty is the standard go-to explanation. But the world has been beaten into a state of punch-drunk bewilderment for much longer than the duration of this sudden rise, so what gives?
Also, there is this – the price went up really fast. What does that speed reveal about the world?
It was at the start of 2024 when gold started recovering previous losses of a few years, tearing through $2000 and gaining 40% in 2024. We should start the story here, although this was just the beginning of the price tear. Here is the consensus behind this early rise:
When Russia invaded Ukraine in February 2022 the US and its allies aimed to paralyze Russia’s ability to defend the Ruble and fund its military operations. By freezing foreign currency reserves (mostly Euros and Dollars), they hoped to trigger a domestic financial crisis that would force a rethink of the invasion.
As the war dragged on, the narrative shifted. In April 2024, President Biden signed the REPO Act, which explicitly authorized the US to not just freeze, but potentially seize these assets to pay for Ukraine’s reconstruction
As usual, unintended consequences.
This period marked a “de-dollarization” epiphany. Countries realized that if the US could freeze the dollar reserves of one nation (Russia), they could do it to anyone. Suddenly, gold wasn’t a hedge or a genteel portfolio diversification strategy; it was “sanction-proof” liquidity. If your dollar reserves can be turned off like a subscription service because of your foreign policy, you start looking for an asset that doesn’t have a “delete” button. And so central banks—led by China, India, and Turkey—shifted from “occasional gold buyers” to “hoarders.”
Torsten Slok, Apollo Global Management’s chief economist, has documented what he calls China’s “key role” in the rally. The People’s Bank of China has now made eleven consecutive monthly purchases, with officially reported reserves reaching 2,264 tonnes (double that of the previous year) – though industry observers suspect the real figure is higher. Meanwhile, Chinese households have poured into gold ETFs, suggesting that ordinary citizens are as nervous about the trade war with America as their central bank.
Economics 101. Constrain supply and the price will rise.
But, of course, that is not the whole story. The fuel under global financial anxiety also stems directly from Trump’s actions – from volatile tariffs imposed and withdrawn and sometimes imposed again, to the insulting of traditional friends and the praising of traditional enemies, to acts of unprecedented incomprehensibility, like assuming he could simply “buy” Greenland.
Each one of these (and they often pour out of his office for days on end) is a small shock to the system, and the foundational and historical stable interplay of global economics and politics can be forgiven for wobbling.
Is there historical precedent for this gold rally? As it turns out, there is, and it is a cautionary tale.
In 1979–80 gold surged from $217 at the start of 1979 to $850 by January 1980 – an increase of roughly 770%. Circumstances were different, but the revolution in Iran, oil supply shocks, the Soviet invasion of Afghanistan, stubbornly high inflation and high government debt had all contributed to a sense of global unease which echoes that of today. And then cigar-chomping tough guy Fed Chairman Paul Volcker took office and raised interest rates to 20%, inflation dropped precipitously and the waters quickly calmed.
By 1982, gold had collapsed to $305.
But there will be no such shock treatment here. Trump wants to force interest rates down, not up. And even if rates were raised to calm inflation, it would make it difficult (if not impossible) for the US to pay down its obligations on its $38 trillion debt.
There have been other sharp rises in gold price – the 2008 financial crisis and pre-Covid come to mind – both anchored in a sense of uncertainty. But their ascents were less steep. What is apparent now is that, as the saying goes, this time is different. A perfect storm broke in the past few months, most of it tied directly to Trump.
There is also this – the rally itself becomes food for the rally. The more prices rise, the more people conclude something must be wrong with the world; the more they conclude something is wrong, the more they buy; the more they buy, the more prices rise. It is a bubble, obviously, but not one based on irrational exuberance – it is based on pessimism. And whether that is rational or irrational is anybody’s guess.
If you want a clean projection, the experts won’t give you one—only ranges with caveats. The cleaner takeaway is conditional: if central banks keep buying, if inflation remains stubborn, and if geopolitical stress remains a constant, the underlying support for gold looks durable.
There is one expert who is not sitting on the fence. Pierre Lassonde, a legendary Canadian gold investor, has drawn explicit parallels to the 1970s, suggesting we are currently in “the equivalent year 1976 right now of that four-year bull market.” If he is correct, there is considerably more upside ahead. If he is wrong – well, at least he spoke with confidence in the face of uncertainty.
And so, what is the speed of this rally trying to tell us? It is not only that the world is unpredictable anymore, it is now unpredictable on steroids, thanks mainly to Trump.
And so, I offer an amateur prediction. If the GOP loses the midterms (meaning that there will be a congressional brake on Trump’s excesses) then the gold prices will return to earth. If they win – buy, buy, buy!
Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg and a partner at Bridge Capital and a columnist-at-large at Daily Maverick, Daily Friend and Currency News. His new book “It’s Mine: How the Crypto Industry is Redefining Ownership” is published by Maverick451 in SA and Legend Times Group in UK/EU, available now.
[image: reve.art]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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