24 October 2025

Jonathan Sparks

Chief Investment Officer, UK, HSBC Private Bank and Premier Wealth

The overarching bull case for gold has really changed: Gold is a hedge against geopolitical and debasement risk, thanks to its widespread use as a “safe haven” de-facto currency. Despite the broad demise of the “gold standard” during the 1970s gold is still valued as a currency among many central banks. Its limited supply and long history of use in coinage, almost 3,000 in coinage, has left its mark on central bankers that have looked to diversify their foreign exchange reserves.

Over the last three years geopolitical risk has escalated, through conflict and trade tensions. Meanwhile, government debt levels teeter on the brink of unsustainability. Amid these uncertainties, gold is seen as a relative safe space, even compared to the USD. Of all the major economies, the US faces the biggest deficits, although the relatively low tax tack of the US means that policymaker could change tack if the political will was there. Yet, as the deficit stands, and alongside the broader trade tensions, if you didn’t think gold was a safe-have before, you would be beginning to question it now.

It's certainly struck a chord with a number of emerging market economies that have large foreign exchange balances to manage. Ever since they started to wade more strongly in gold markets the price of gold has climber higher. Last year it was up just over 27%. But this year its up nearly 60%.

Why the acceleration in gains? According to reserve data, the usual central bank buyers are still there – Russia and Poland have been big buyers this year. Another major player has stepped into the ring this year too: the retail investor. Flows into gold etfs have surged this year, after standing on the sidelines of the rally through 2024. Having seen the strong gains, the retail investors has stepped in.

This makes sense: since “liberation day” in early April, tariffs have never been far from the front of mind and debt sustainability risk have begun to get price into bond markets. Normally, these higher yields would be bad for gold, with offers no income for investors. Also, the USD plummeted in the first half of the year, drawing attention to the risks of seeing USD as their main safe-haven currency.

With the retail investor arriving later to the party, there is room for gold to rally further – the initial rationale remains, after all. We even see gold average USD4,600/oz next year, about 11% higher than current levels. In the first 6 months of the year, it wouldn’t surprise us if it reached USD5,000/oz. There is an note of caution, however. Retail investors can be fickle, say compared to a central bank that has a mandate to hit a certain level of gold reserves. There is also bound to be flows from investors that are simply chasing the rally higher, and could bolt for the door should gold wobble from its highs -especially if they are forced to sell on the back of broader market falls. That’s why this week’s volatility is not unexpected, and could be signs of more volatility to come. That’s why we point to holding gold as a diversifier, even a hedge in times of political upheaval; but it’s also why gold should be seen as one asset amid a broader context of equity and fixed income, which at least offer income too.